Market Shifts Into Full Mania Mode
As AI trade continues to enter more and more radical territory, I’m bracing for a bad ending.
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The similarities between 1999 and 2026 seem to grow by the week. Both eras saw equity indexes climb to extreme valuations viewed via a variety of traditional metrics like the Shiller Price-to-Earnings ratio. Both markets sported huge market concentrations with technology being the primary driver of the market rally. The recent parabolic moves in semiconductor names like Intel (INTC) and Micron Technology (MU) are mimicking the blow off tops in networking and dot-com stocks at the tail end of the Internet Boom.
It seems every week investors experience radical one-day moves from AI-related trades. This week Hewlett Packard Enterprise (HPE) rallied 19% in trading on Tuesday after reporting blowout first-quarter numbers after the bell on Monday and significantly boosting forward guidance. Revenues rose 40% on a year-over-year basis powered by robust demand from AI data centers.
Marvell Technology (MRVL) moved up 32% yesterday because Nvidia’s (NVDA) CEO called Marvell the next “trillion-dollar company”. The primary driver of the huge rise in the technology sector is that the five major hyperscalers will spend roughly $700 billion of capital expenditures combined in 2026. That is up some 80% over 2025’s levels, which itself was much higher than 2024.
The downside to all this spending is manifold on several fronts. Free cash flow has plunged at the hyperscalers. Both Amazon (AMZN) and Oracle (ORCL) will see large negative free cash flows in 2026. Meta Platforms (META) and Alphabet (GOOG) have recently announced large reductions in force to free up capital to fund this massive AI infrastructure buildout. Debt issuance is also soaring to support this spending, and Alphabet just announced it was raising some $80 billion via equity issuance to bolster its balance sheet. Credit Default Swaps on Oracle’s debt have surged. Stock buybacks are being impacted as well with Big Tech’s stock repurchases dropping more than 60% in Q1 from the same period in 2025.
One of the biggest questions for investors is whether all this capex will generate a positive return on investment over time. A recent piece by the Financial Times projected that would not end up being the case. If that comes to fruition, it could impact hyperscaler capex growth at some point in the future.
And in one of the biggest signs the market has entered the mania stage is that Space Exploration Technologies Corp. (SPCX), Anthropic and OpenAI are planning massive IPOs that could value the three companies at up to a combined $4 trillion. None of these firms are profitable and SpaceX will be priced at over 80-times revenues. All three stocks will be added to the indexes soon after they come public, which could introduce another source of potential volatility for passive index investors.
IPO waves have been typical of tops in markets. Some 476 companies came public in 1999. Contrast that to less than 100 IPOs last year. Many of these companies that went public in the last stages of the Internet Boom would see bankruptcy or be acquired for pennies on the dollar before the Internet Bust ended in the summer of 2002. A surge of IPOs and special purpose acquisition companies powered by the cheap money from the Federal Reserve, happened in 2021 as well. By mid-2024, a third of these SPACs would be in bankruptcy.
In my view, markets are clearly in the mania stage. The $64,000 question for investors is when it ends. Unfortunately, my crystal ball does not have that answer, but my portfolio remains prudently cautious given that outlook.
At the time of publication, Jensen was long AMZN and MRVL
