Gravity defying, single-day AI stock rallies are the latest bubble signal
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Massive single-day stock pops are becoming a regular occurrence for AI stocks. On Monday, AMD soared nearly 40% off a multibillion-dollar AI data center partnership with OpenAI, mirroring gains seen after Oracle's earnings.
Why it matters: These record one-day rallies are looking frothy as investors continue worrying about an approaching AI bubble.
What they're saying: These kinds of pops are "very rare" but indicate that investors are "looking for the next big thing, possibly an Nvidia killer," Jay Woods, chief market strategist at Freedom Capital Markets, tells Axios.
- While he doesn't see valuations that are historically extreme just yet, Woods cautions that he does see "pockets of euphoria," adding "the bubble is forming."
By the numbers: A new partnership with OpenAI, including a 10% stake from the AI startup, sent AMD shares skyrocketing. At midday, it was up more than 28%.
- If AMD closes with a gain of 27% or more, it would be the second-largest one-day gain for the stock since at least 1985, Bespoke Investment Group writes.
- Oracle's stock rallied nearly 40% in one day after its latest earnings release.
- OpenDoor jumped 80% in one day after a new CEO announcement.
- MongoDB jumped 38% after better-than-expected earnings.
Zoom out: Those kinds of pops represent "a frenzy," Woods says.
- "It's overreaction to the upside…but generally speaking, this is extremely positive, this is good bull market activity."
- Regarding AMD, Woods says, "the table is set for this side to grow and grow strongly over the next 12 to 36 months."
Threat level: "History will look back and we'll probably call this a bubble," he adds.
- "It's just FOMO," Dario Perkins, macro strategist at TS Lombard, tells Axios.
Yes, but: The most recent examples of aggressive stock pops (AMD and Oracle) were "justified" based on the enormous investments in these companies and potential for future growth, Woods says.
- That justification helps investors stomach valuations that keep growing, even though they are creeping closer and closer to dot-com bubble levels.
- Signs of the bubble popping will become clearer, allowing investors time to exit before a severe drop, Woods says.
The bottom line: One-day gains of near 40% are increasingly normal as investors are looking for the next Nvidia, but that kind of activity could indicate a shift from optimism into irrational exuberance.
