JPMorgan is warning investors about speculative tech stocks, noting that the riskiest corners of the tech sector have significantly outperformed their larger counterparts. A Goldman Sachs basket of profitless technology companies surged 27% in May, outperforming the Nasdaq 100 Index by 17 percentage points, marking its strongest outperformance since November 2020. This group has seen a 57% gain year-to-date, compared to an 11% gain in the S&P 500 Index. Wall Street analysts are advising caution and suggest investors might want to exit these holdings. Bloomberg.com

Concerns are mounting that the current AI rally, particularly in memory chipmakers, resembles the speculative fervor of the 1999 dot-com bubble. JPMorgan analysts pointed to a signal mirroring the divergence seen before the dot-com crash in 2000, specifically highlighting a gap between AI hardware stocks and the companies actually spending on AI. This has led to worries about potential overvaluation and the sustainability of the current gains. BusinessInsider.com, investinglive.com

The recent tech rout has exposed weaknesses in the speculation machine driving the market, especially with leveraged investment products. Leveraged ETFs, which use derivatives to amplify daily returns, now manage over $270 billion globally, with more than $200 billion in the US and over $45 billion in Asia. These products can magnify both gains and losses, as demonstrated by the significant declines in some South Korean leveraged funds tracking AI chipmakers. James St. Aubin, CIO at Ocean Park Asset Management, described these products as introducing a 'casino element' to the market, warning that investors using leverage are 'playing with fire'. Yahoo.com

The week saw benchmark indexes decline, with the S&P 500 falling nearly 2% and the Nasdaq 100 tumbling over 4%. This downturn impacted speculative investments across the board, from leveraged ETFs tied to AI chipmakers to newly launched funds for Space Exploration Technologies Corp. (SpaceX), which reportedly lost about 40% from their debut. This highlights how market-moving narratives quickly spawn leveraged investment products, which can then amplify both rallies and reversals, affecting overall market pricing and sentiment. Yahoo.com