Nvidia surpasses $4 trillion, and the Nasdaq soars like it hasn’t in 16 years. But are we sure it’s sustainable? Here’s what’s behind the unbridled race to AI.
Wall Street has never been so optimistic about artificial intelligence. Nvidia just surpassed $4 trillion in market capitalization, the Nasdaq is hitting new highs almost weekly, and investors are heavily investing in US tech stocks at the fastest pace in 16 years. It feels like the beginning of a new era. Or a new bubble.
The market is betting everything on AI, but it’s ignoring an increasingly obvious risk: Big Tech has become so central that it’s now "too big to fail", a label historically reserved for systemic financial institutions. It’s not just a question of numbers. It’s a question of systemic stability. Today, if a giant like Nvidia, Apple, or Microsoft collapses, the shockwaves could overwhelm entire segments of the market or even the global economy.
This frenetic rush is at times reminiscent of the euphoria that preceded the 2000s, but with the (substantial) difference that today’s tech companies are not startups with brilliant ideas, but pillars of the real economy. This makes the potential impact of their stumble even more critical.
It’s worth asking: are we witnessing a technological revolution destined to last, or are we approaching a breaking point that no one wants to see?
Wall Street is betting everything on AI in 2025, but at what price?
Between April and July 2025, investments in the technology sector rose at a rate not seen since the 2009 crisis. According to a Bank of America survey, the shift from a 1% "underweight" to a 14% "overweight" in tech represents a clear reversal in sentiment, driven by a hunger for profits and the belief that AI will continue to generate high margins.
The most emblematic case is Nvidia, which after its decision to resume chip sales in China gained 4% in a single session, bringing renewed enthusiasm to the entire semiconductor sector. The Nasdaq Composite consequently recorded a rise of over 33% from its April lows, repeatedly updating its all-time highs.
Other companies such as Microsoft, Alphabet, Meta, and Amazon, all directly or indirectly involved in the AI race, are also under scrutiny ahead of earnings season, with analysts already poised to register yet another surge.
Behind this enthusiasm, however, are doubts that are starting to be felt even among the most optimistic operators. Big Tech may have become so dominant that they are now perceived as "too big to fail."
The problem isn’t just one of concentration. The outsized growth of a few stocks is distorting market breadth and index composition. Today, the "Magnificent Seven" (Apple, Microsoft, Alphabet, Amazon, Nvidia, Meta, and Tesla) represent a disproportionate portion of US stock indices and Wall Street’s overall performance. In essence, if they do well, everything goes well. But if something cracks, the domino effect can be devastating.
The Paradox of Rational Euphoria: The Dollar and Other Uncertainties
The dollar has lost nearly 10% against a basket of currencies since the beginning of the year, penalized by growing distrust of US fiscal and trade policies. In May, Donald Trump’s announcement of the protectionist tariffs unleashed a wave of market jitters, with Wall Street undergoing a sharp correction for fear of a trade escalation.
Yet that sell-off was absorbed much more quickly than many expected. Today, a nearly blind bet on artificial intelligence and the ability of tech giants to adapt and grow seems to prevail, even in a far from simple geopolitical context.
A clear sign of this confidence comes from the US government’s latest move: the easing of restrictions on chip exports to China, an opening that has revitalized not only Nvidia but the entire semiconductor sector. It demonstrates how, despite tensions, the game of tech innovation continues to dominate the market.
A move that suggests a pragmatic trade-off, rather than slowing down the American AI race.
At the same time, interest in Europe is growing. According to the BofA survey, a net 41% of investors are now overweight Eurozone stocks, compared to just 1% in January. The euro has also benefited from the dollar’s weakness, reaching long-term highs in terms of positioning.
A sign that, at least in part, investors are seeking alternatives to US hegemony, not only for currency reasons, but also to diversify the risk associated with a potential slowdown in US tech stocks.
So, are we in a phase of rational euphoria? Fundamentals seem to justify some of the gains, with strong earnings, high margins, and robust cash flow. But valuations, as BofA also points out, are among the highest in the last hundred years.
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Original article published on Money.it Italy 2025-07-19 12:53:00. Original title: Wall Street punta tutto sull’AI nel 2025. Ma occhio ai titoli too big to fail
