LIVE MARKETS-AI stock concentration nears past bubble peaks

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AI STOCK CONCENTRATION NEARS PAST BUBBLE PEAKS

Investors who think the artificial intelligence rally has further to run can find support in the 19th-century railroad boom, Bank of America analysts led by Michael Hartnett said in a note. But they warned that the comparison also points to risks.

The 10 biggest AI stocks now make up 42% of the market. That's within the 36% to 44% range at which major bubbles have topped out, from the 1920s to the dotcom boom in 2000. The exception was railroads, which hit 63% in 1881.

That means the bull case depends on the idea that "it's the railroads this time," the analysts wrote.

Some signs support that view, they said. AI capital spending is 3.5% to 4% of GDP, still below the roughly 5% peak of the railroad era. And while freight rates were falling before railroad stocks peaked, semiconductor prices are now soaring.

Other signs don't. The railroad boom happened while US Treasury yields were falling, and it ended because of credit and liquidity crises. Today, yields are rising instead, with zero-coupon bonds down 15% in the third quarter.

(Karen Brettell)

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