Has the AI Rally Hit Its First Reality Check?

The first week of November brought a flicker of doubt to what had seemed an unstoppable rally. After seven months of near-relentless gains, equity markets wavered and with them, the AI narrative faced its first real test.

A few cautious remarks from leading bank CEOs were enough to shake investor confidence. The same momentum that had propelled AI-linked stocks suddenly turned against them, raising a long-suppressed question:

How much of the AI boom is grounded in fundamentals and how much is driven by faith?

Despite the market’s hesitation, the underlying data remains compelling:

• Nearly 85% of S&P 500 companies have reported Q3 results.

• 82% of those beat expectations, above the five-year average

• Technology earnings surged 22%, led by the “Magnificent Seven”

AI is not just a buzzword. It is driving real profits and strategic investment. However, the rally’s concentration is becoming hard to ignore:

• The top 10 U.S. stocks now account for over 40% of the S&P 500’s market capitalisation

• NVIDIA, valued above $5 trillion, is now larger than several entire sectors and rivals the GDP of major economies

While comparisons to the dot-com bubble are inevitable, today’s tech leaders are fundamentally stronger:

• Profitable and cash-generative

• Funding innovation internally

• Benefiting from a loosening monetary backdrop, unlike the tightening seen in 2000

Still, with valuations stretched and sentiment fragile, even a modest shift in tone can trigger outsized market moves. The tension between conviction and caution is now defining the narrative.

So, what does this moment really signal?

A temporary pause in a long-term transformation or the first crack in an overheated narrative?

AI continues to reshape industries, drive productivity, and redefine corporate strategy. But when so few names carry so much weight, concentration risk becomes a strategic concern. If sentiment cools further, broader market participation may become not just desirable but necessary.

At Intrasia, our view is clear: Diversification is no longer optional. It is essential.

A forward-looking strategy means:

• Expanding across sectors, geographies, and capitalisations

• Managing valuation risk and volatility with discipline

• Preparing for a market where innovation is fast but sentiment can shift even faster

The AI story is far from over. But perhaps November’s stumble is less about weakness and more about recalibration. A reminder that even the most transformative themes must occasionally return to earth before taking their next leap forward.