US stock market surges due to AI boom, Jefferies warns of speculation

The US stock market is seeing a boom as there are huge investments in artificial intelligence (AI). Jefferies, however, cautions that this boom also has an element of speculation. According to Jefferies' Greed and Fear report, AI-related investments and passive fund flows have increased the market value of the S&P 500 by approximately $15 trillion since April, equivalent to half of US GDP. Meanwhile, the US dollar index has fallen by approximately 10% this year.

The report states that the nearly 40% surge in Oracle's stock following its quarterly earnings is a sign of market frenzy. Oracle unveiled a massive, five-year, $300 billion deal with OpenAI. Nvidia subsequently pledged to invest $100 billion in OpenAI's data center project. Jefferies compared the situation to the tech bubble of the 2000s and warned that this model could first collapse in GPU-rental businesses.

And the policy relaxation by the Federal Reserve has further spiced up the rally in stocks. New Federal Reserve Governor Stephen Meiran has been giving signals of containing long-term interest rates, which will spur the dollar and lift the price of gold. China's AI rally also rages on. Mainland inflows via Stock Connect propelled the Hang Seng Tech Index by almost 43% this year, while the Nasdaq has risen merely 16.5%. Alibaba's share has risen 109% this year, and Tencent's 56%.

Jefferies stated that Western investors, who previously considered China unsuitable for investment, are now changing their minds, driven by China's boom in semiconductors, robotics, and clean energy. A meeting between Xi Jinping and Donald Trump at the APEC summit next month could pave the way for a potential trade deal. Hong Kong is also showing signs of improvement. Retail sales have increased, IPO funding has doubled, and exchange volumes have increased. While office and retail property prices remain low, residential housing is showing early signs of improvement.

Jefferies warned, "Markets are more reflexive than ever in the AI ​​era. Retail investors are now buying stocks recommended by their chatbots. The sustainability of the US AI capex boom will determine whether the rally will last or fizzle out."