Company Interview / US markets at risk of double bubble

Key points:

Narrow AI and semiconductor trade seen driving twin bubbles in tech and industrials Earnings growth expectations viewed as misaligned with 2% US GDP and non‑cyclical jobs data Preference for large cash positions and trimming high‑beta chip and equipment stocks

John Blank of Zacks Investment Research portrays an increasingly fragile US equity market, driven by what he characterises as a narrow, over‑crowded trade in high‑beta, AI and semiconductor‑linked names. Blank points to large‑cap valuations at around 23 times forward earnings and projected 20% earnings growth, which he views as difficult to reconcile with US GDP tracking near 2% and non‑cyclical job gains concentrated in government, health care and leisure. He describes much of the earnings strength as “manufactured” via financial engineering and warns of a growing disconnect between fundamentals and euphoric expectations.

Blank contends that investors are now inflating two bubbles – in technology and industrials – all tied to a single AI and data‑centre narrative. He highlights heavy positioning in small caps and industrials on the assumption of surging demand for power, factories and semiconductor capacity, but argues this is essentially one crowded trade expressed in multiple ways. In response, he favours holding significant cash and exiting chip‑related names.

Turning to specific stocks, Blank cites Tokyo Electron, Advantest and Infineon as emblematic of late‑stage excess, each trading on elevated forward P/Es after abrupt share price spikes in recent weeks. He sees markets pricing in idealised 2028 earnings outcomes, particularly for Infineon’s power segment, and regards recent moves as a climax phase rather than a fresh opportunity.