Recently, the financial market had an event similar to an “AI Carnival,” with many announcements and partnerships in the AI sector. Nvidia invested $1 billion in Nokia, Microsoft extended its partnership with OpenAI, and PayPal teamed up with ChatGPT. However, there are signs of market fatigue. The equal-weighted S&P index is struggling, indicating that only a few stocks drive market movements. Nvidia’s market value jumped by almost a quarter-trillion dollars in one day, while Microsoft added $80 billion. Many are skeptical about how long these high valuations can last. Goldman’s research team points out that the current AI profits are different from past bubbles. Unlike the dot-com era, today’s AI leaders have strong balance sheets, yet there’s a trillion dollars invested in AI infrastructure with uncertain returns.

Concerns About Market Concentration

The market is highly concentrated, with just 15 companies accounting for 90% of the S&P’s returns. This shows a lack of market diversity, as the AI sector now largely represents the market itself. The current atmosphere feels driven by momentum rather than true belief. Although AI companies are making profits, there’s a significant risk of falling back into self-referential cycles, which may lead to changes in market behavior soon. The concentration in the S&P 500 is at levels we haven’t seen since 2000. As of late October 2025, the top ten companies in the index make up over 38% of its total value. This concentration indicates that the easy gains from investing in the biggest AI stocks are becoming crowded and risky. Our takeaway is to respect the current trend but prepare for possible increased volatility. The VIX is hovering around 14, signaling complacency like we saw before the turbulence in early 2024. Buying protective puts on broader indexes like the SPX or QQQ is now a relatively low-cost way to shield portfolios from sudden changes in sentiment.

Shifts In Market Strategy

We should also watch for signs of capital moving towards value outside the big AI names. There are early signs of this shift, as industrial and energy sector ETFs are starting to do better than the NASDAQ 100 over the past month. Using call options on these cyclical sectors could offer a way to gain from the next market phase. This isn’t about betting against the leaders; it’s about securing gains with affordable put options. Another strategy is to consider pairs trades with options, such as going long on AI software companies with steady revenue and shorting capital-heavy chip makers whose growth is slowing down. This highlights the widening gap among different AI firms. During the Q3 2025 earnings calls, CEOs mentioned expected productivity gains by 2027, but capital expenditure guidance is finally starting to stabilize. This trend supports the idea that the explosive growth phase, in which capex soared over 40% in 2024, is now coming to an end. This slowdown in spending is a crucial indicator that momentum is decreasing. From the dot-com era, we remember that market leaders often held up the longest before the broader index fell. Today’s fatigue feels similar—not a crash signal but a reminder to be more selective. It’s time to shift from chasing trends to buying protection and looking for diversification. Create your live VT Markets account and start trading now.

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