AI-Led Bull Market Nears Fourth Year as Investors Weigh Crash Risk, Rate Hikes

The S&P 500’s extended run — now stretching past the three-year mark — has been powered largely by artificial intelligence names, but a combination of macroeconomic headwinds is prompting some market watchers to brace for a potential downturn.

AI has been the dominant theme of the cycle. Companies across the semiconductor supply chain posted outsized gains as investors moved early to capture exposure to the technology build-out. Two prominent examples illustrate the trend: Micron Technology, which designs and manufactures memory and storage products for cloud, data center, and mobile applications, was recently trading at $1,016.59, up 6.58% on the day and valuing the company at roughly $1.15 trillion. NVIDIA, whose Compute & Networking segment supplies the accelerators underpinning large-scale AI infrastructure, stood at $223.67, down 0.73% on the session, with a market capitalization near $5.56 trillion.

Headwinds Multiply

Recent months have brought a shift in tone. Geopolitical instability in Iran, elevated U.S. price levels, and growing questions about the sheer scale of AI-related capital spending have combined to make investors more cautious about both AI names and the broader market.

Monetary policy has also turned. The Federal Reserve this week raised interest rates for the first time in three years in an effort to contain inflation. Higher rates translate into steeper borrowing costs for consumers and for companies funding expansion, a dynamic that could weigh on corporate earnings growth going forward.

Valuations present another consideration. By some measures, the overall market is trading at price levels that have only been exceeded once in history, leaving limited margin for error if earnings disappoint.

Crash Talk, and What History Suggests

These factors have fueled concern among some investors that a market crash could be on the horizon. The timing of any such event is, of course, unknowable — but market historians note that drawdowns are a recurring feature of stock market cycles, and one will eventually occur, whether near-term or far in the future. The original commentary argued that a long-term orientation remains the most reliable posture through such cycles, though outcomes for individual stocks like Micron and NVIDIA will depend on their own earnings trajectories and the durability of AI demand.

The pieces of context matter for semiconductor investors in particular: memory and AI accelerator makers have been among the cycle’s biggest beneficiaries, meaning they could also see amplified swings if sentiment deteriorates.

What to watch

• The Federal Reserve’s next policy meeting and any follow-up signals on the rate path after this week’s increase.
• Upcoming quarterly earnings from memory and AI infrastructure companies, including Micron and NVIDIA, for evidence on AI spending durability.
• Capex guidance from large cloud and data center operators, a key driver of semiconductor demand.
• Valuation levels on the S&P 500 relative to historical extremes.

Source: original release