The Bears Have Declared Victory… Again. But Are They Right?

This week’s update at a glance

• The AI sell-off was real. Friday’s NASDAQ session was particularly weak, and some leading technology stocks have suffered substantial declines. The risks deserve attention.
• The earnings evidence complicates the bubble story. Garry’s comparison of index gains with forward earnings expectations points to lower relative forward valuations, rather than an advance driven solely by expanding P/E multiples.
• Financing is the dividing line. Some AI businesses face serious credit and cash-flow pressures; others have very different financial positions. Treating the entire sector as one trade ignores those differences.
• Rotation is not the same as wholesale retreat. While large technology stocks have struggled, healthcare, utilities, small caps and the equal-weight S&P 500 offer important contrary evidence.

What you’ll learn

• Why falling share prices and falling forward valuations are not necessarily the same thing as collapsing earnings.
• Where AI financing, cash conversion and credit risks are most relevant - and why blanket conclusions are dangerous.
• What US market breadth and sector rotation say about the possibility of a major market top.
• How Garry is assessing selective opportunities in AI, healthcare and precious metals without trying to predict the next low.

The thinking shift

The bears have had plenty to cheer about. Some of the biggest AI names have been marked down severely, and questions about the financing of the enormous infrastructure build-out are legitimate. But the conclusion that the entire AI trade is a speculative bubble is a much bigger claim than the recent price action alone can support.

My focus is on separating stocks with genuine financial or fundamental problems from those being sold because sentiment has turned against the whole group. Neither a sell-off nor a strong earnings forecast guarantees the next move. We need to understand the evidence, then let the market show us when the balance between buyers and sellers has changed.

The numbers missing from the victory speech

The common bearish argument is that US indices rose because investors simply kept paying more for every dollar of earnings. In the video I compare the 2026 rise in index prices with the change in estimated future earnings. On the figures shown, the S&P 500 was up about 13%, while forward earnings expectations had risen 32.8% - implying forward P/E compression of nearly 15%. The comparable figure for the NASDAQ was around 22%.

That is not what an advance driven purely by multiple expansion looks like. However, there is an essential qualification: these are forward earnings estimates, not earnings already delivered. Forecasts can disappoint and valuations can compress further. The figures challenge a simplistic bubble narrative; they do not prove that prices have reached a bottom or that all AI stocks are attractively valued.

Where the bearish case has substance

The biggest pressure point is increasingly funding. Some AI infrastructure businesses have meaningful credit exposure, and cash conversion has begun to weaken for some hyperscalers. Neocloud business models are generally more exposed to a tightening of financing conditions than better-funded parts of the AI supply chain. Weak company outlooks and deteriorating share-price trends cannot simply be dismissed.

Friday’s NASDAQ breadth was ugly, with declining stocks outnumbering advancers by roughly three to one. Some communication-services charts also look distinctly weak. Yet smaller companies and the equal-weight S&P 500 held up better, while healthcare and utilities have been attracting capital. To my eye, that continues to suggest a substantial degree of rotation, rather than confirmed wholesale abandonment of US equities.

Where I’m focused now

• AI and semiconductors: Assess financial resilience, earnings sustainability and technical confirmation company by company. Being cheap on forecast earnings is not, by itself, an entry signal.
• Healthcare and defensive rotation: Follow the strength already emerging in selected healthcare, utilities and infrastructure names, rather than assuming technology must regain leadership immediately.
• Gold and silver: The recent weakness is substantial. Longer-term fundamentals may justify attractive opportunities, but the charts have not yet provided the confirmation I want; a further washout remains possible.
• Next week’s volatility: With the US midterm elections ahead, be organised, know your position sizes and have a plan. Preparation matters more than confidently forecasting the next market move.

Important information

_{Any advice in this video is general advice only. Neither your personal objectives, financial situation or needs have been taken into consideration. Accordingly you should consider how appropriate the advice (if any) is to those objectives, financial situation and needs, before acting on the advice. Garry Davis (AR No:317590) is an authorised representative of Primary Securities Ltd (AFSL No. 224107).}

_{Note to traders* The publishers of this article/information/promotion wish to disclose that they may hold stocks mentioned in their portfolios and that any decision to purchase those stocks should be made only after the purchaser has made their own enquiries as to the validity of any information in this article/information/promotion.}

_{Past performance should not be taken as an indicator of future returns. Trading and investing in financial markets involves risk of losing money.}

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