Key insights
- The AI stock trade is showing signs of overheating, with specific stocks like Micron exhibiting extreme overbought conditions not seen since 1995, suggesting a potential for significant price correction or prolonged consolidation. This narrow market leadership, driven by a few AI-focused names and even legacy companies like IBM on unusual news, raises concerns about the sustainability of the current rally and could signal a broader market pullback if these leaders falter.
Yahoo Finance Executive Editor Brian Sozzi and the Opening Bid panel — Sevens Report Research Founder Tom Essaye, Yahoo Finance Senior Business Reporter Ines Ferre, and Markets & Data Editor Jared Blikre discuss the state of the AI trade and whether soaring valuations have left AI stocks overpriced.
RSI is the relative strength indicator and it shows you momentum in a stock. And when it gets too high, like 70 or 80, uh that means it's potentially overbought. And so maybe it's gone a little bit too far, too fast. And so what Micron has done on monthly data here, so this is a very large time frame, has not been this overbought since 1995. Now, it doesn't mean that Micron has to roll over immediately, but, according to your notes, um that's exactly what it did in 1995 uh for about a year and a half and it it I think it dropped about 40%, something like that. So, there are two ways a stock can uh kind of get rid of its overbought status. It can correct in price or it can correct in time. and if it corrects in time, you don't have to see a big price decrease, but you got to consolidate a little bit. So, Micron has definitely gone a little bit too far, too fast and we're just splitting hairs over when the eventual top is, I think.
Jerry, know where I got that amazing stat from? Yahoo Finance Alpha Space. Love me some Alpha Space. I was able to go back quickly on my dashboard and go back to 1995 and look at the relative strength index as I tried to predict a stock price. No, I just kidding. But I did use Alpha Space for that. And as, you know, in a sign of the crazy times, we have IBM up so much this morning simply because of a recirculated video of the president touting uh IBM's stock and its CEO. I this is just wild stuff.
These are these are some legacy companies that are seeing some big gains. uh and if you take a look across the space, I mean, we are talking about a narrow leadership when it comes to the market rally that we've seen and this has sort of concerned some strategist talking about fragility uh basically in this rally because of the uh narrow leadership, but within the AI space, you have seen this broadening of this trade beyond just uh semiconductors. So, you're looking at Microsoft this morning, that's up uh because software has taken a bit. Also, it's been pounded down earlier this year because of this uh Jensen Huang announcement. You're also looking at Dell, HPE, um these companies are also these sort of like legacy companies that are seeing gains. So, it's it's across the board when it comes to the AI trade. It's you're talking about CPUs, you're talking about servers, personal computers. I wouldn't be surprised if also you've got the hand- held phones because now it's all about also AI being done more locally. So if you're talking about personal computers that can have more AI workload, what about personal phones later on that can be that is able to do this. Still, we're still talking about what Tom was talking about, which is it's the AI trade and anything that you mentioned with AI is going to see a bump.