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AI Rally Fades as OpenAI’s $500B Valuation Fuels Bubble Concerns – Tom Essaye

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Sevens Report president says stagflation or fading AI enthusiasm are key risks

Open AI’s Valuation: Sign of AI Confidence or Froth?

The tech sector—especially semiconductors and anything AI-related—caught a solid morning bid yesterday following reports that OpenAI’s latest secondary stock sale valued the company near $500 billion. The $10 billion employee share sale sparked fresh enthusiasm across the AI complex, fueling a wave of early risk-on momentum in big-tech names.

However, the initial surge quickly faded. Key AI leaders like NVDA gave back early gains, and while the SOX (semiconductor index) still finished higher, it closed below its open—suggesting growing reluctance among investors to chase AI stocks at historically rich valuations.

The takeaway: While the OpenAI valuation reinforced confidence in the long-term AI narrative, it also underscores how frothy sentiment has become. If investor expectations begin to recalibrate or AI momentum stalls, the risk of a meaningful profit-taking pullback in tech—and potentially the broader market—is rising.

Also, click here to view the full article featured on Barron’s published on October 3rd, 2025. However, to see the Sevens Report’s full comments on the current market environment sign up here.

If you want research that comes with no long term commitment, yet provides independent, value added, plain English analysis of complex macro topics, then begin your Sevens Report subscription today by clicking here.

To strengthen your market knowledge take a free trial of The Sevens Report.

Join hundreds of advisors from huge brokerage firms like Morgan Stanley, Merrill Lynch, Wells Fargo Advisors, Raymond James, and more! To start your quarterly subscription and see how The Sevens Report can help you grow your business, click here.

Acknowledging the Negative Outcome

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What’s in Today’s Report:

  • Acknowledging the Negative Outcome
  • Weekly Market Preview: Does Fed Commentary Back-up Rate Cut Expectations?
  • Weekly Economic Cheat Sheet: Fed speak the key with no government data this week.

Futures are solidly higher thanks to strength in Japanese stocks following a surprise election outcome and despite no progress on resolving the U.S. government shutdown.

The Nikkei surged more than 4% after the ruling Liberal Democratic Party elected Sanae Takaichi to be the new Prime Minister, a mildly surprising outcome that’s seen as positive for more economic stimulus from the BOJ.

Politically, there was no progress on resolving the U.S. government shutdown over the weekend, although markets are continuing to ignore the shutdown (and likely will for another two weeks or so, should it last that long).

Today there are no economic reports so focus will remain on any progress on resolving the shutdown.  There is also one Fed speaker today, Schmidt at 5:00 P.M. ET, but his comments come after the close and shouldn’t move markets.

How ORCL Earnings Explain the Opportunities and Risks in AI

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What’s in Today’s Report:

  • How ORCL Earnings Explain the Opportunities and Risks in AI

Futures are slightly higher following a mostly quiet night of news as investors digested the better than expected PPI report and looked ahead to today’s all-important CPI.

Economically, the only notable number was Japanese PPI which was better than expected, rising 2.7% y/y vs. (E ) 2.8% y/y.  Japanese stocks rallied 1% in response.

Today brings the highlight of the week, CPI, and expectations are as follows:  0.3% m/m, 2.9% y/y.  A better-than-expected headline will solidify rate cut expectations and push back on stagflation concerns and that should be a solid market positive.  A “hot” number, however, will put three rate cuts before year-end in doubt and almost certainly pressure stocks.

Other events today include an ECB Rate Decision (E: No Changed), Jobless Claims (E: 234K) and some notable earnings reports:  KR ($1.00), ADBE ($4.21), RH ($3.20).

 

Understanding Where the “Bubble” Is in AI

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What’s in Today’s Report:

  • Understanding Where the “Bubble” Is in AI
  • Weekly Market Preview: Does the Fed Start a New Rate Cutting Cycle?
  • Weekly Economic Cheat Sheet: Fed is Key, but There’s Important Growth Data This Week, Too

Futures are slightly higher following a mostly quiet weekend and despite negative tech news and economic data from China.

China declared that NVDA had broken anti-monopoly news, escalating existing tech tensions between China and the U.S. (although this move isn’t a total surprise).

Economically, Chinese data underwhelmed as Retail Sales rose 3.4% vs. (E) 3.8% while Industrial Production gained 5.2% vs. (E) 5.6%.

Focus today will be on the first economic reading of September, the Empire Manufacturing Index (4.3) and markets will want to see stability to further push back on slowdown concerns.

Sevens Report: Tech Valuations Look Stretched Despite AI-Driven Leadership

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Massive demand for semiconductors and AI infrastructure fuels gains, but valuations raise sustainability concerns.

Tech Valuations Stretch as AI Boom Meets Investor Caution

According to the latest Sevens Report, “massive demand for semiconductors and AI infrastructure combined with the promise of AI driven leaps in profitability” have made technology the undisputed leader of the S&P 500’s advance.

But valuations now appear difficult to justify. Sevens highlighted Palantir as “the most obvious example,” calling it “a stock that is the best performer in the S&P 500 YTD but also trades at a quasi-absurd 212X forward earnings!” Even broad-based exchange-traded funds such as XLK are trading at “above 29X earnings, a level that hasn’t proven historically sustainable.”

Recent declines in AI-related names, driven by disappointing reactions to earnings at CoreWeave, Applied Materials and Cisco, provided a small relief to valuations. But Sevens warned that “the ‘bar’ to impress investors in the AI names is high.”

With rate cuts expected next month, investors are also rotating into more cyclical sectors such as utilities, industrials and financials. Still, finding value in technology remains a challenge for new money. “The reality is that finding value in the tech space is a challenge, especially for new money that needs to be allocated but doesn’t want to chase sky-high valuations,” Sevens said.

The report suggested that investors can still participate in the AI-driven rally while managing risk by using alternative ETF strategies. These include equal-weight and smart beta approaches, as well as income-focused ETFs that “boost yield, and in doing so lower the aggregate valuation of the ETF.”

“Alternative tech strategies that can complement core tech holdings can lower overall tech valuations in a client portfolio, yet still provide exposure to the key names in the space,” concluded Sevens.

Also, click here to view the full article published in Investing.com on August 21st, 2025. However, to see the Sevens Report’s full comments on the current market environment sign up here.

If you want research that comes with no long term commitment, yet provides independent, value added, plain English analysis of complex macro topics, then begin your Sevens Report subscription today by clicking here.

To strengthen your market knowledge take a free trial of The Sevens Report.

Join hundreds of advisors from huge brokerage firms like Morgan Stanley, Merrill Lynch, Wells Fargo Advisors, Raymond James, and more! To start your quarterly subscription and see how The Sevens Report can help you grow your business, click here.

Tom Essaye Quoted In Barron’s – Two Threats Could Derail Market Rally

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Sevens Report president says stagflation or fading AI enthusiasm are key risks

2 Factors That Could Trigger a Stock Market Selloff

Despite recent economic surprises and geopolitical noise, none of it has slowed the market rally, according to Tom Essaye, president of Sevens Report Research.

“For the simple reason that they weren’t enough to make investors think that 1) tariffs may cause stagflation or 2) meaningfully reduce AI enthusiasm,” Essaye wrote.

He stressed that while conflicting inflation data, questions about data validity, and global tensions add uncertainty, investors should focus on whether developments increase stagflation risk or curb AI optimism.

“As long as the answer to both is ‘no,’ then while stocks may see some volatility, the trend in this market should remain higher,” Essaye concluded.

Also, click here to view the full article featured on Barron’s published on August 18th, 2025. However, to see the Sevens Report’s full comments on the current market environment sign up here.

If you want research that comes with no long term commitment, yet provides independent, value added, plain English analysis of complex macro topics, then begin your Sevens Report subscription today by clicking here.

To strengthen your market knowledge take a free trial of The Sevens Report.

Join hundreds of advisors from huge brokerage firms like Morgan Stanley, Merrill Lynch, Wells Fargo Advisors, Raymond James, and more! To start your quarterly subscription and see how The Sevens Report can help you grow your business, click here.

Tom Essaye: Fading AI Enthusiasm Could Threaten Market Rally Despite Strong Economy

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Sevens Report warns that slowing momentum in AI stocks may weigh on equities even if growth remains resilient

10 AI Stocks Making Headlines This Week

Sevens Report founder Tom Essaye cautioned that a cooling wave of enthusiasm for AI stocks could spell trouble for the broader market. The note highlighted steep drops in C3.ai and CoreWeave following soft guidance and disappointing results.

“Those moves put a question in my head… What happens to this market if AI loses momentum?” Essaye wrote. While investors remain focused on tariffs, economic data, and Fed policy, the report warned that equities could falter even in a stable macro environment if AI names fail to deliver.

Five stocks — Nvidia, Microsoft, Meta, Broadcom, and Palantir — have powered 56% of the S&P 500’s 10.8% year-to-date gain, according to Sevens. Essaye stressed that execution will be critical as the AI trade matures. “If AI enthusiasm begins to fade, this market will face a headwind regardless of whether the economy is stable,” the report said.

Also, click here to view the full article on Insidermonkey.com published on August 16th, 2025. However, to see the Sevens Report’s full comments on the current market environment sign up here.

If you want research that comes with no long term commitment, yet provides independent, value added, plain English analysis of complex macro topics, then begin your Sevens Report subscription today by clicking here.

To strengthen your market knowledge take a free trial of The Sevens Report.

Join hundreds of advisors from huge brokerage firms like Morgan Stanley, Merrill Lynch, Wells Fargo Advisors, Raymond James, and more! To start your quarterly subscription and see how The Sevens Report can help you grow your business, click here.

What Happens If AI Loses Momentum?

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What’s in Today’s Report:

  • What Happens if AI Loses Momentum?
  • Oil Update and Weekly EIA Takeaways

Futures are little changed following a quiet night of news and as CSCO earnings largely met expectations.

Economically, data was mixed in Europe as UK GDP (0.4% vs. (E) 0.2%) and Industrial Production (0.7% vs. (E) 0.5%) beat estimates while EU GDP met estimates (0.1%) but Industrial Production missed (badly) (-1.3% vs. (E) -0.5%).

Today focus will turn back to economic data and there are two notable reports today: Jobless Claims (E: 230K) and PPI (E: 0.2% m/m, 2.6% y/y).  Of the two, PPI is more important and if it confirms the mostly tame CPI reading from Tuesday, it will further solidify rate cut expectations and support stocks.  There is also one Fed speaker today, Barkin (2:00 p.m. ET), and given recent conflicting commentary from voting members on the FOMC, the tone of each speaker will become more important.

Finally, mid-season earnings continue and some notable reports today include: JD ($0.44), AMAT ($2.34), NTES ($1.85), DE ($4.62), AAP ($0.59), NU ($0.13).

 

Sevens Report’s Tom Essaye Flags Bubble Risk in AI-Driven Rally

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Semiconductor weakness signals possible cracks in AI trade

AI-Driven Market Rally Raises Bubble Concerns: Strategist Warns of Potential Warning Signs

Tom Essaye of the Sevens Report warns that the AI-fueled stock market rally may be unsustainable, as semiconductor stocks lag the broader market.

While the S&P 500 is up nearly 14% since July 2024, the PHLX Semiconductor Index has barely broken even, raising questions about the rally’s foundation. Essaye also notes slowing U.S. job growth and rising jobless claims, cautioning that bubbles often burst in late economic cycles — with a recession posing a major risk to AI-driven gains.

Also, click here to view the full article published in AInvest.com on August 9th, 2025. However, to see the Sevens Report’s full comments on the current market environment sign up here.

If you want research that comes with no long term commitment, yet provides independent, value added, plain English analysis of complex macro topics, then begin your Sevens Report subscription today by clicking here.

To strengthen your market knowledge take a free trial of The Sevens Report.

Join hundreds of advisors from huge brokerage firms like Morgan Stanley, Merrill Lynch, Wells Fargo Advisors, Raymond James, and more! To start your quarterly subscription and see how The Sevens Report can help you grow your business, click here.

Tom Essaye warns the AI-stock index is flashing bubble risk

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The AI trade could be inflating a late-cycle stock market bubble, warns Tom Essaye, founder of Sevens Report Research.

‘This bull market in equities has a serious problem’: Strategist warns a crucial AI-stock index is sending a potential bubble signal

In an August 1 client note, Essaye wrote that “every bubble in modern market history has been based on a narrative”—and today, that narrative is AI. But to measure the health of the AI trade, he points to the PHLX Semiconductor Index (SOX), not just Nvidia.

Semiconductors are the “lifeblood” of AI, yet SOX remains below its July 2024 highs while the S&P 500 has climbed nearly 14% in the same period. That lagging performance, Essaye says, is a meaningful divergence:

“If AI remains the primary source of bullish optimism… this market is in trouble and at risk of rolling over sooner than later.”

He cautions that if SOX begins a material selloff, the S&P 500 likely won’t be far behind.

Adding to the risk: weaker recent payrolls, rising continuing jobless claims, and stretched valuations after an ~85% rally from the October 2022 lows.

“It is critical to keep close tabs on economic data right now,” Essaye stressed in an August 8 note, warning the broader market remains vulnerable to considerable downside if economic resilience falters.

Also, click here to view the full article published in Business Insider on August 9th, 2025. However, to see the Sevens Report’s full comments on the current market environment sign up here.

If you want research that comes with no long term commitment, yet provides independent, value added, plain English analysis of complex macro topics, then begin your Sevens Report subscription today by clicking here.

To strengthen your market knowledge take a free trial of The Sevens Report.

Join hundreds of advisors from huge brokerage firms like Morgan Stanley, Merrill Lynch, Wells Fargo Advisors, Raymond James, and more! To start your quarterly subscription and see how The Sevens Report can help you grow your business, click here.