"AI Bubble" Historic Nasdaq Performance, Investors Pulling Out

Mutual Funds and ETFs See 58 Trillion KRW Net Outflow
Betting on Index Decline Amid Concentration Concerns

Thanks to the rise of major tech stocks such as Nvidia and Apple, the Nasdaq 100 index posted its best performance ever in the first half of this year, but the number of investors betting on a decline in the index is increasing. Investors are withdrawing, believing that the growth stock rally centered on artificial intelligence (AI)-related tech stocks has ended. Large sums of money are flowing out of mutual funds and exchange-traded funds (ETFs) that track growth stocks.

According to financial information provider Refinitiv on the 2nd (local time), $44 billion (about 58 trillion won) was net withdrawn from mutual funds and ETFs tracking growth stocks in the first half of this year. In the second quarter alone, there was a net outflow of $20 billion.

The net outflow was driven by concerns over the inflated valuations of AI-related tech stocks and the possibility of tightening resuming. Bloomberg reported, "Concerns that the valuations of AI-related stocks have soared to unsustainable levels, inflation not falling as expected, and expectations of the Federal Reserve (Fed) resuming interest rate hikes are lowering expectations for the growth stock rally."

Nvidia, considered a representative beneficiary of AI, saw its stock price surge by a whopping 190% in the first half of this year alone, while Apple, the leading stock in the U.S. market during the same period, rose 50%, surpassing a market capitalization of $3 trillion for the first time based on closing price.

The fact that the stock market rally has manifested as a 'concentration phenomenon' centered on a few tech stocks is also increasing concerns. The Nasdaq 100 index surged 37% in the first half of this year, recording its best performance ever. However, the index's rise was limited to a rally in some large tech stocks including Apple, Microsoft (MS), Alphabet, Amazon, and Nvidia.

[Image source=Reuters Yonhap News]

Todd Sohn, Director of ETF Technology Strategy at Strategas Securities, said, "As the concentration phenomenon increases investment risk, investors are reducing their exposure to growth stocks."

For this reason, investors have been increasing their holdings of cash-equivalent assets and bonds in the first half of this year. Michael Hartnett, strategist at Bank of America, analyzed, "Since the beginning of this year, global investors have poured $752 billion into cash-equivalent assets and $113 billion into investment-grade or higher bonds to avoid stock investment risks."

However, expectations for the continuation of the growth stock rally have not completely disappeared. Bloomberg reported, "the market views the earnings reports coming out around mid-July as a 'wildcard' that will determine the direction of tech stocks in the second half of the year," adding, "The flood of big tech earnings starting with the mid-July earnings season will influence the future market sentiment."

Big tech companies including Alphabet and MS will start announcing their Q2 earnings on the 25th, followed by Meta and Qualcomm on the 26th, and Apple, Amazon, and Intel on the 27th. Despite macroeconomic crises such as inflation and a sharp drop in demand, Apple and Amazon posted surprise earnings exceeding market expectations in Q1, and Meta broke a three-quarter streak of declining sales with strong results, fueling expectations that the earnings recovery period for big tech will begin in earnest.

Brook May, Management Partner at U.S. investment advisory firm Evans May Wealth, said, "Investors are paying attention to whether big tech stocks, which have risen significantly this year, can continue strong earnings to quell concerns about overvaluation."

This content was produced with the assistance of AI translation services.