Artificial Intelligence Collapsing

Last week, Trump was running amok threatening tariffs on every corner of the world. Friday in Tokyo the BOJ hiked rates for the first time since they crashed global markets back in August. The market ended the week two years overbought. And then Sunday night the futures crashed. So who does everyone blame?

China.

"China’s artificial intelligence breakthrough is shaking the foundation of the West’s dominance in this technological arms race, conjuring comparisons to one of the USSR’s greatest achievements."

Now, it turns out AI models may not necessarily need tens of thousands of the latest generation AI chips sold at full price"

Is it not convenient that a new narrative emerges just as S&P futures liquidity collapses due to the unwinding Yen carry trade. A carry trade that overwhelming benefited the Mag7 Tech companies via the index futures, four of which companies report earnings this week (META, MSFT, AAPL, TSLA).

Recall that the entire AI bubble began just over two years ago with the viral unveiling of ChatGPT.

That was the beginning of U.S. AI dominance, so no surprise this DeepSeek "Sputnik moment" is coming at the end of the super bubble, in order to give a convenient excuse for why it's ending with ZERO warning. The fact that Silicon Valley and Wall Street robbed investors blind in the meantime has once again been totally ignored by everyone. As it was when the pandemic ended, the cloud "Work-from-home" Tech stocks all collapsed when everyone went back to work. Now once again, the cloud AI narrative is coming into question. I have systematically warned throughout this two year bubble that Artificial Intelligence is just another Silicon Valley/Wall Street hype cycle. A bridge to nowhere. Voila.

Starting this week, the so-called "hyperscalers" which are Microsoft (Azure) Google (Cloud) and Amazon (AWS) will come under the microscope both for the ludicrous amount they have been throwing away on hardware - $80 billion this year for Microsoft alone - but they will also be under the microscope due to the incipient slowing sales growth - which was already evident last quarter - in their cloud computing businesses, putting a final nail in the coffin of the ROI on this gargantuan malinvestment.

Below we see via the S&P Semiconductor ETF, the true story. The bubble began just over two years ago with the viral ChatGPT unveiling. The AI bubble officially ended this past July which was attended by BOJ and FOMC meetings, and Tech earnings, in other words it was a collapse in liquidity that collapsed the overnight S&P futures, imploding the bubble on a Monday. But then it rallied back to a second lower high. Which was a very choppy three wave rally, warning that it would not last.

Now, the exact same events are attending this latest liquidity collapse, but note the difference, this time the liquidity collapse is coming at the top NOT at the bottom. Which means that the selloff is just getting started as complacency remains high relative to the low in July, which was accompanied by a massive VIX spike.

In Elliott Wave parlance this is the third wave down. It's widespread acknowledgement that a new high is not coming and therefore it ultimately leads to panic, which should come over the next several days.

In summary, last week's new all time high in the S&P 500 was an AI bull trap. Which reset the counter on what has the potential to be the fastest crash into bear market in history.

Day 1 is starting off with a bang.