Quick overview

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Wall Street’s record highs can no longer be explained solely by enthusiasm surrounding artificial intelligence.

Behind the rapid development of AI technologies — particularly within the semiconductor industry — there is a very real boom in capital spending on data centers, chips, memory, energy, and digital infrastructure. However, the explosive growth in AI-related assets is also exposing increasing fragility beneath the surface of the market rally.

Price gains are becoming increasingly concentrated in a small group of companies, while the broader market fails to keep pace. At the same time, valuations are pricing in an exceptionally optimistic future for the sector, and the liquidity that fueled the rally may not last indefinitely.

What Valuations Are Signaling

In 2026, Wall Street’s main technology ETF, the Technology Select Sector SPDR, has surged roughly 23.7% — nearly three times the 8.5% return delivered by the broader market ETF. Meanwhile, the Nasdaq has climbed 16.3%, almost double the performance of the S&P 500.

Within the technology rally, semiconductor stocks have led the gains. The PHLX Semiconductor Index has jumped nearly 173% year-over-year, marking its strongest advance since the peak of the dot-com bubble in 2000 — a comparison that is increasingly raising concerns among investors.

Part of those gains are supported by genuine fundamentals. With nearly 90% of S&P 500 companies having already reported first-quarter earnings, 84% exceeded analyst expectations, while aggregate earnings growth reached 27.7% year-over-year — the fastest pace since late 2021.

Technology companies have led that expansion, posting earnings growth of 50.7%. However, that figure falls to 28.5% when excluding NVIDIA and Micron Technology.

Four Risks the Market Cannot Ignore

1. Extreme Concentration and Weak Market Breadth

The first risk is structural and already visible in the market itself.

According to data from BTIG, the S&P 500 recently closed 7.7% above its 50-day moving average, while only 52% of its components traded above their own 50-day averages.

Over the past 30 years, the market had never experienced a situation where the index traded more than 7% above its moving average while fewer than 55% of stocks participated in the rally.

This reflects the growing concentration in mega-cap technology companies, which continue driving indexes to new highs even as much of the broader market struggles under geopolitical volatility and economic uncertainty.

2. Valuations Pricing in a Near-Perfect Scenario

The second risk lies in valuations themselves.

Corporate earnings growth is real, but stock prices now assume a future that must unfold almost perfectly. The 10 best-performing stocks in the Nasdaq 100 over the past year gained an average of 784%, surpassing the 622% average increase recorded by the top-performing stocks before the March 2000 dot-com peak.

As a result, comparisons with the dot-com bubble are becoming increasingly difficult to ignore.

3. The Reversal of Global Liquidity

The third risk is less visible but potentially more systemic.

The technology rally is not driven solely by AI optimism. It has also been supported by an enormous amount of global liquidity that was never fully absorbed after years of aggressive monetary stimulus.

The expansion of central bank balance sheets that began during the 2008 financial crisis never truly reversed and accelerated even further during the pandemic. Higher interest rates have only partially drained that liquidity from the financial system.

If global liquidity conditions tighten further, risk assets — particularly high-growth technology stocks — could face significant pressure.

4. Geopolitical Shock and Persistent Inflation

The fourth risk comes from geopolitics and inflation.

Oil prices recently climbed back above $100 per barrel amid the conflict between the United States and Iran, contributing to a rebound in U.S. inflation during April and reigniting uncertainty over the Federal Reserve’s monetary policy path.

The current concern is that the conflict could continue, crude oil prices could remain in triple digits, and central banks may be forced to adopt an even more restrictive monetary stance at a time when risk asset valuations are already stretched to extreme levels.