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The U.S. stock market is experiencing a sharp rally, particularly focused on artificial intelligence (AI) stocks, which has intensified the debate about a potential bubble. When the dot-com bubble burst in 2000, the Nasdaq index plummeted by approximately 80% over a span of 2 years and 5 months from its peak. It took 15 years for the index to recover to its previous high of 5048. Wall Street, which remembers that fear, is divided on whether the current AI-driven rally signals an overheating of stock prices that will lead to a bubble collapse or if it marks the beginning of a structural bull market that could last for years.

The concerns regarding profitability are growing. Traditional metrics for assessing whether stock prices are overvalued present mixed interpretations. The Buffett Indicator (the ratio of the total market capitalization of U.S. public companies to the countrys GDP), which Warren Buffett has called the best single measure of valuation, surpassed 220% as of July 7, exceeding levels seen during both the dot-com bubble (140%) and the post-COVID liquidity rally (190%). In contrast, the Nasdaq 100, which is heavily weighted towards large tech companies, shows a forward price-to-earnings ratio (P/E) of about 28, still significantly below the peak of 47 during the dot-com era.

The essence of the current AI bubble narrative is focused on the issue of investment profitability. Major cloud service providers (CSPs) like Microsoft, Amazon, Google, Meta, and Oracle are competing intensely to secure the computing resources necessary for AI, pouring astronomical amounts of money into this endeavor. However, whether this expenditure will yield commensurate returns remains uncertain. JP Morgan estimates that the AI capital expenditure of the five largest CSPs in the U.S. could reach $1.2 trillion (approximately 1697 trillion won) by 2027. David Einhorn, founder of Greenlight Capital, stated, "The numbers being circulated now are unrealistic," emphasizing the immense capital involved in this race.

As the debate continues, investors and analysts alike are left to ponder the sustainability of this rally and the potential risks associated with an overheated market. The dynamics of the AI sector and its impact on the broader economy will likely be scrutinized closely in the coming months, as stakeholders seek to navigate this complex landscape.

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