The Trillion Dollar AI Tech Hangover: Market Bubble Burst

Overall, the gains in the stock market over the past two years are largely due to seven companies, and if the AI tech run-up i.e. AI Bubble Burst. If this market correction scenario did occur it's likely we could see a 20% to 30% drop in the stock market lasting 18 months or more. Based on market research, author James Dean says he added Broadcom (AVGO) and Alphabet (Googl) to the watch market list of stocks.

• Rare Coins (Gold/Silver): Likely a Good Hedge. They historically act as a "safe haven" alongside precious metals during market panic. BUY ✔️
• Sports Cards: Likely a Poor Hedge. They are "risk-on" assets. An AI bubble burst could hit the specific demographic (tech-wealthy young investors) that drives modern card prices, causing them to likely crash harder than the stock market. HOLD ❌
• Investment Grade Luxury Watches, Luxury Handbags Hermès Birkin & Kelly Bags and Vintage Toys also do well and historically are resistant to economic market downturns.  BUY ✔️
• Investment Grade Art ... In a downturn, the art market bifurcates i.e. splits into fork. Speculative "hot new artists" crash, but established "Blue Chip" masters tend to appreciate as billionaires move cash into tangible assets.The Names: Andy Warhol, Jean-Michel Basquiat, Pablo Picasso, and Yayoi Kusama.  How to Buy: While original canvases cost millions, investors often use fractional platforms (like Masterworks) or buy signed, limited-edition prints during downturns. BLUE CHIP ART CAUSE BUY ❌  

• The "Mechanical" Drop: The Mag 7 currently make up roughly 35-40% of the S&P 500. If these seven stocks lost 50% of their value (returning to pre-AI boom valuations), that alone would mechanically pull the S&P 500 down by about 15–20%.
• The "Panic" Multiplier: Bubbles rarely deflate neatly. A crash in the leaders typically triggers margin calls, forced selling of other healthy stocks to raise cash, and a loss of consumer confidence. This "contagion" effect usually doubles the mechanical drop.
• Historical Parallel: In the 2000 Dot-com crash (the closest parallel to today), the tech-heavy Nasdaq fell 78% peak-to-trough, while the broader S&P 500 fell 49%.

• The "L-Shaped" Recovery: When bubbles burst due to overvaluation (price being too high relative to earnings), stocks often stay "dead money" for years as earnings slowly catch up to the price.
• Historical Context:
• Dot-com Bubble: Peaked March 2000 $\rightarrow$ Bottomed October 2002 (2.5 years of decline).
• 2008 Financial Crisis: Peaked October 2007 $\rightarrow$ Bottomed March 2009 (1.5 years of decline).
• The "Lost Decade" Risk: After the 2000 crash, Microsoft (the giant of that era) did not recover its year 2000 peak price until 2016—16 years later.

• Broadcom (AVGO): While Nvidia makes the "brain" (GPU), Broadcom makes the "nervous system" (networking chips that let chips talk to each other). As AI clusters get massive, networking becomes more critical than the processor itself.
• Oracle (ORCL): They are winning by focusing on "sovereign AI" (helping nations build their own AI clouds) and offering cheaper, faster AI training clusters than Amazon or Microsoft.

• Utilities & Nuclear Energy (e.g., NextEra Energy, Constellation Energy): AI data centers are energy vampires. The grid cannot currently support them. Companies that own power generation—specifically nuclear and renewables—hold the ultimate bottleneck.
• Arista Networks (ANET): Essential for the high-speed data transfer required inside massive AI data centers.

• Arm Holdings (ARM): As AI moves from giant servers to your phone and car ("Edge AI"), Arm's power-efficient chip architecture becomes the industry standard over the power-hungry chips from Intel or AMD.
• Apple (AAPL): While currently seen as "lagging," their privacy-focused "Apple Intelligence" strategy positions them to dominate the consumer side of AI. If the cloud bubble bursts due to high costs, running AI locally on iPhones becomes the economically superior model.

• Palantir (PLTR): One of the few companies actually proving they can monetize AI right now (helping governments and corporations analyze data), rather than just promising future results.

• Percentage of Gains: In the first three quarters of 2025, the Magnificent Seven accounted for approximately 42% of the S&P 500's total return.
• Market Weight: These seven companies alone now control roughly 34.5% of the entire S&P 500 market value. This is a historically high level of concentration, meaning nearly one-third of the index's movement is dictated by just seven distinct corporate boards.

1. Nvidia (NVDA): The clear leader, driven by insatiable demand for AI chips.
2. Microsoft (MSFT): Remains a dominant force due to its heavy investment in AI and cloud computing.
3. Alphabet (GOOGL): Strong performance driven by search dominance and AI integration.
4. Amazon (AMZN): continued growth in cloud (AWS) and retail efficiency.
5. Meta Platforms (META): High performance due to ad revenue recovery and efficiency measures.
6. Apple (AAPL): Steady, though it has trailed the explosive growth of Nvidia.
7. Tesla (TSLA): The most volatile member; it has faced significant pressure and occasionally lagged the group, leading some analysts to swap it for Broadcom in top-tier lists.

• Broadcom (AVGO): Due to a massive rally in 2025 (+60% YTD by October), Broadcom has effectively crashed the party, becoming larger than Tesla and contributing more to the S&P 500's gains this year than several original members.