The research firm said that the market was experiencing “AI Fatigue” following the massive AI investments by hyperscalers.
- The firm said that competition from cheaper Chinese technologies and falling token prices are stoking fears that already excess compute capacity will lead to "creative destruction."
- Yardeni Research also highlighted that the market’s Fabulous Earnings Momentum may be starting to lose traction.
- Meanwhile, the Dow Jones Industrial Average has been strong this year, it noted, adding that the “Dow Theory remains bullish.”
The S&P 500 pulled back in June, declining nearly 3% so far this month. According to Yardeni Research, this is largely a reflection of a market rotation away from AI-linked stocks rather than a broader selloff.
“As we predicted, the S&P 500 had a June Swoon. We expected that it would be more of a broadening rotation than a widespread correction. That's the way it played out,” the firm said in a note posted on Saturday.
The research firm also highlighted that the market’s “FEMO” (Fabulous Earnings Momentum) may be starting to lose momentum, noting that while the S&P 500 forward earnings edged up to another record high during the week of June 25, analysts' consensus earnings expectations edged down for full-year 2026 and 2027.
Why Yardeni Sees Signs Of ‘AI Fatigue’
Yardeni Research posited that the markets were exhibiting characteristics of “AI Fatigue” as they mulled over the massive AI investments by hyperscalers.
Major hyperscalers, including Amazon, Google, Microsoft, Meta, and Oracle, collectively plan to invest more than $700 billion in capital expenditures in 2026.
The firm said that competition from cheaper Chinese technologies and falling token prices are stoking fears that already excess compute capacity will lead to "creative destruction."
The MAG-7 Became The Lag-7
These forces are already weighing down hyperscaler stocks, according to the company. “As a result, the Mag-7, which includes the biggest hyperscalers, hasn't been so magnificent in June. The MAGS ETF peaked at a record high on May 26 and fell 12.9% though Friday's close (chart). It is down 6.6% ytd, while the XMAGS ETF (a.k.a. the "Impressive 493") is up 13.7%. The Mag-7s have been the Lag-7s,” the firm said.
Broader Market Trends
The financial consulting firm also noted that while hyperscalers were declining, the iShares Semiconductor ETF (SOXX) climbed in June, even soaring to a new record high. “So there has been rotation even within the Information Technology sector,” the firm said.
Meanwhile, the Dow Jones Industrial Average has been strong this year, it noted, adding that the “Dow Theory remains bullish.”
At the time of writing, the SPDR S&P 500 ETF (SPY), which tracks the S&P 500 index, rose 0.91% and SPDR Dow Jones Industrial Average ETF Trust (DIA) was up 0.41%. Meanwhile, the SOXX also edged up 0.69%.
Retail sentiment on Stocktwits around SPY was in the ‘bearish’ territory, while it was neutral for DIA and ‘bullish’ for SOXX.
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