The Kobeissi Letter Says AI Stocks Fell Over 13% in October While the S&P 500 Excluding AI Hit a Record High
The "stealth" bear market is in full-swing. While the Nasdaq 100 erased -$4 trillion in 25 days, the "S&P 500 Excluding AI" hit a RECORD high on Friday. AI stocks fell over -13% in October while the S&P 500 Excluding AI gained+8%. What's happening? Let us explain. (a thread)
Context
A sharp split between AI stocks and the rest of the market shows investors growing more doubtful about AI spending, which can affect how easily AI companies raise money.
The Kobeissi Letter is a market commentary account. The S&P 500 Excluding AI is an index view that leaves out information technology and communication services stocks, where most large AI companies sit. The Nasdaq 100 is heavy in large technology stocks.
Deep dive
The Kobeissi Letter posted on Saturday that what it calls a stealth bear market is in full swing. According to the post, the Nasdaq 100 erased 4 trillion dollars in 25 days, while the S&P 500 Excluding AI hit a record high on Friday.
The post says AI stocks fell over 13% in October while the S&P 500 Excluding AI gained 8%, and it opens a thread to explain why. Its attached chart, which tracks the period from early October, shows the S&P 500 excluding information technology and communication services up 4.79% and the Nasdaq 100 down 9.18%, and labels the move the largest monthly drop on record for AI stocks. The figures in the text and the chart cover slightly different measures and periods, and they come from The Kobeissi Letter rather than an official index provider.
The post lands after a week of news that tested confidence in AI spending, including reports in this deck's Oct 30 edition that OpenAI cut the size of its fundraise and that S&P lowered Meta's outlook over heavy AI spending. The post does not argue that AI demand is falling, only that investors moved money out of AI names during the month.
What to expect next
Watch the first trading days of November to see if the gap between AI stocks and the rest of the market keeps widening or reverses. Upcoming earnings from chip makers and cloud providers will test whether AI spending plans hold. Also watch whether AI startups find it harder to raise money at high valuations if the selloff lasts, and whether the drop changes how much big tech plans to spend on data centers next year.