The AI bubble has burst, companies are going bankrupt and things will never recover. That seems to be roughly the kind of message analysts need these days if they still want to make an impression on investors. There appears to be some sort of competition over who can write the most negative report on AI and who can be the first to predict the end of the hype. Good luck with that!
I can remember the first doom-and-gloom stories appearing fairly soon after the launch of ChatGPT in November 2022. After all, who wouldn’t want to be the first to predict the end of the world and turn out to be right? You’ll understand that I’m exaggerating slightly, but the point is that there is a big difference between being right and being proved right.
"}},{"componentType":"sectionTitle","title":"Profits are rising faster than share prices"},{"componentType":"paragraph","richBody":{"value":"Since November 2022, enormous sums have been invested in building AI infrastructure, models have been developed and adoption has increased. But is anyone actually making money from all this? Absolutely. Just look at profit growth among semiconductor companies. They are quite literally awash with cash. So it is hardly surprising that their share prices have risen so strongly over the past four years.
Does that mean these shares are far too expensive? No, because in many cases profits and earnings expectations have risen much faster than share prices. Partly as a result, IT-sector shares have become almost 30% cheaper since the start of this year, based on lower price-to-earnings ratios. But what about expected profits? So far, we have seen no signals that growth is running out of steam. Quite the opposite: growth and earnings expectations have in many cases continued to be revised upwards.
Of course, growth will eventually slow. Growth of tens or even hundreds of per cent a year simply cannot continue indefinitely. Every investor understands that. But that is no reason to throw in the towel or invent reasons to predict the end of the hype and explain every fall in share prices.
"}},{"componentType":"sectionTitle","title":"A big difference from the dot-com bubble"},{"componentType":"paragraph","richBody":{"value":"There is a major difference compared with the dot-com bubble of twenty-five years ago. Back then, many internet companies were not yet making any profits and their prospects were largely based on fantasy. Today, too, the future will undoubtedly prove less rosy than predicted for some companies. But in many cases, share prices are still supported by real, realised profits, while we have yet to see any end to the wave of AI investment. High expectations inevitably come with a great deal of uncertainty. And what if you had exited the Nasdaq in November 2022? You would have missed out on a 120% return (total return, in euros). Fear is often a poor adviser.
After months in which AI seemed capable of moving in only one direction, yesterday offered a reminder that even popular investment themes occasionally need a reality check. The AI hype is not over, but the market is becoming more critical about who will ultimately make real money from all those billions being invested.
"}},{"componentType":"sectionTitle","title":"AI, inflation and interest rates drive sentiment"},{"componentType":"paragraph","richBody":{"value":"The story of the day was the combination of cooling AI euphoria and yet another stubborn inflation reading. Concerns about Anthropic’s growth figures put chip and AI-related stocks under pressure worldwide. Investors are particularly focused on whether the current wave of investment in AI infrastructure can continue indefinitely. Beneath the surface, however, what we mainly saw was a rotation out of chip stocks and into other sectors.
At the same time, US producer prices came in higher than expected. Last month, annual producer price inflation accelerated from 5.6% to 6.3%, well above the expected 5.4%.
This reinforced the view that inflation is still not fully under control. Fed Chair Kevin Warsh later provided some reassurance by describing AI as the most transformative economic development of his lifetime and a major boost to the US economy. As a result, expectations of further rate hikes eased slightly.
Even so, the message remains simple. The market wants to believe that interest rates have peaked, while central bankers do not yet appear fully convinced. Bundesbank President Nagel explicitly refused to rule out further ECB rate hikes. This underlines that the interest-rate theme has not disappeared.
"}},{"componentType":"sectionTitle","title":"Europe rebounds despite weakness in chips"},{"componentType":"paragraph","richBody":{"value":"European equities started the day under pressure amid the global technology sell-off (-2.5%), but ultimately closed higher. The Stoxx Europe 600 index gained 0.4%, reaching its highest level since late September. So don’t let yourself be (mis)led by alarmist headlines. Defensive sectors such as healthcare (+2.2%) and communication services (+2.4%) took over from technology.
For Dutch investors, it was another uncomfortable day in the semiconductor sector. ASML fell 4.2%, while ASM International lost as much as 7.2%. Moves of this magnitude highlight just how sensitive valuations have become to changes in sentiment around AI investment. Pharmaceutical stocks, meanwhile, were in demand, with AstraZeneca making one of the biggest positive contributions.
European banks also remain interesting to watch. UniCredit received permission from the ECB to raise its stake in Commerzbank further. The consolidation wave in the European banking sector therefore appears far from over.
"}},{"componentType":"sectionTitle","title":"Remarkably sharp fall in French yields"},{"componentType":"paragraph","richBody":{"value":"On the bond market, yields fell in a kind of ‘risk-off’ move, following the direction of US Treasuries. The French 10-year yield recorded the biggest decline, falling 8 basis points to 4.80%. Apparently, France has suddenly become Europe’s safest haven! It shows that investor behaviour, and what is subsequently said and written about market moves, is often little more than a description of the emotions of the day. The German 10-year yield fell 5 basis points to 3.41%.
We expect to see some reversal of that move today, as inflationary pressures have not disappeared and equity markets are likely to rebound further.
"}},{"componentType":"sectionTitle","title":"Bargain hunters push Wall Street higher"},{"componentType":"paragraph","richBody":{"value":"On Wall Street, we saw a pattern that is beginning to sound familiar. Investors are initially unsettled by inflation and growth developments, before buyers step in once share prices have fallen far enough.
The S&P 500 index eventually closed 0.3% higher, snapping a three-day losing streak. The Nasdaq ended 0.1% higher after rebounding strongly from its intraday low. The Dow Jones was once again the strongest of the three, gaining 1.1%.
The sector rotation was particularly notable. Financial stocks rose by an average of 1.4%, helped by another set of strong quarterly results. We believe the decline in share prices over recent weeks has been overdone and therefore maintain the overweight position in financials in the ING investment strategies.
Healthcare stocks (+1.8%) even reached new record highs. This is more important than the daily moves in the technology sector, as it shows that the equity-market rally is becoming increasingly broad-based.
There are also significant differences beneath the surface within the IT sector. The Philadelphia Semiconductor Index still closed 0.9% lower, but the software sector gained 1.1%. We maintain our overweight position in IT-sector equities in the ING investment strategies. Profits are strong, as are expectations, while valuations have fallen sharply. In our view, that decline is unjustified, and the same applies to semiconductor stocks.
"}},{"componentType":"sectionTitle","title":"US yields fall sharply"},{"componentType":"paragraph","richBody":{"value":"Despite the strong inflation figures, longer-dated US yields edged lower yesterday. The yield on the 30-year Treasury even fell to its lowest level in more than three weeks. That also helped sentiment during the trading session. The US 10-year Treasury yield fell by no less than 13 basis points to 5.06%. In my view, this was an exaggerated ‘risk-off’ reaction, amplified by the unwinding of short positions. We expect some reversal, because, as mentioned above, inflationary pressures in the US have not disappeared. Quite the opposite.
"}},{"componentType":"sectionTitle","title":"Bargain hunters also emerge in Asia"},{"componentType":"paragraph","richBody":{"value":"There is a more optimistic mood in Asia this morning. Almost all markets are in positive territory and the glass suddenly looks half full again. Remember that some of the market’s best trading days often come shortly after its worst. The MSCI Asia Pacific index is up around 1.5%. Buyers are falling over themselves to hunt for bargains. South Korea stands out with a rebound of just under 2%, having been more than 4% higher earlier in the session. Japan’s Nikkei index is up 1.4%.
China is showing a mixed picture. State-backed funds appear to be supporting the equity market, helping sentiment. Investors are meanwhile looking ahead to China’s growth figures on Monday, which are expected once again to come in below the official growth target. Hong Kong’s Hang Seng index is 0.1% higher, while the CSI 300 index is down 0.9%.
In Indonesia, the stock market is plunging by more than 11% after MSCI warned that the country may no longer meet the criteria for emerging-market classification. Trading even had to be temporarily halted. For now, this appears to be primarily a local story, but markets will be watching closely for any signs of contagion to other emerging markets.
"}},{"componentType":"sectionTitle","title":"Today’s agenda"},{"componentType":"paragraph","richBody":{"value":"The economic calendar is relatively quiet today. This afternoon, we expect figures on US industrial production. Economists forecast a 0.4% increase in September, following a flat August.
On the corporate earnings front, the main focus today will be on the US regional banks reporting results. These could provide further insight into credit quality, savings behaviour and interest margins. Their results will also be closely watched in Europe.
Futures point to a positive opening this morning. Euro Stoxx 50 and DAX futures are trading around 0.6% higher, supported by the rebound on Wall Street and the strong session in Asia. UK FTSE 100 futures, however, are 0.1% lower. In the US, S&P 500, Nasdaq 100 and Dow futures are up between 0.1% and 0.2%. Futures are, of course, only a snapshot and can still move significantly before the opening bell.
"}},{"componentType":"sectionTitle"},{"componentType":"paragraph","richBody":{"value":""}},{"componentType":"linkList","iconTitle":{"title":"Read More"},"textLinks":[{"text":"2026 Investment Outlook","url":"/en/personal/investing/market-news-and-views/investment-outlook-2026-home"},{"text":"Market Outlook","url":"/en/personal/investing/market-news-and-views/market-outlook"},{"text":"Number of the Week","url":"/en/personal/investing/market-news-and-views/number-of-the-week-overview"},{"text":"More News and Views","url":"/en/personal/investing/market-news-and-views"}]},{"componentType":"sectionTitle","title":"Good to know"},{"componentType":"paragraph","richBody":{"value":"Investing involves risks and costs. The value of your investment may fluctuate. Past performance is no guarantee of future results. Read more about the risks of investing.
This publication has been prepared on behalf of ING Bank N.V. and is intended for information purposes only. ING Bank N.V. obtains its information from sources deemed reliable and has taken the utmost care to ensure that the information on which it based its views in this publication was not incorrect or misleading at the time of publication. ING Bank N.V. does not guarantee that the information it uses is accurate or complete. The information contained in this publication may be changed without any form of announcement. Copyright and data file protection rights apply to this publication. Data from this publication may be reproduced provided that the source is stated. ING Bank N.V. has its registered office in Amsterdam, commercial register no. 33031431, and is regulated by the Dutch central bank De Nederlandsche Bank (DNB) and the Netherlands Authority for the Financial Markets (AFM). ING Bank N.V. is part of ING Groep N.V.
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