https://t.co/Txjx3dhO5g [Is the AI Market Burning to Ashes?] U.S. Midterm Elections: Democratic Sweep as a “Call to Arms” Against AI; AI-Related Stocks Plunge Sharply; Anthropic’s IPO May Be Delayed; Backlash Against AI Is Globalizing — In-Depth Analysis by Emin Yilmaz Rakumachi #AISummary Precursors to the AI Bubble Burst and the Underlying Causes of Semiconductor Stock Plunge 🔳 U.S. Midterm Election Shock and Stock Market Plunge Following the Democratic Party’s regain of majority control in both chambers of the U.S. Congress, the Nikkei 225 recorded its third-largest single-day decline in history, falling below 60,000. Analysts suggest the unexpected scale of the Democratic victory accelerated market selling pressure. 🔳 Impact of Democratic Victory on the AI Market Many Democratic candidates oppose data center construction, and voters broadly expressed similar opposition during the election. Progress on deregulation and corporate tax cuts under the Trump administration is now expected to stall, raising concerns about policy stagnation over the next two years. 🔳 Relationship Between the AI Bubble and Semiconductor Bubble The AI bubble includes both companies developing AI and those supplying the semiconductors and equipment required for its development. The semiconductor bubble is a critical component of the AI bubble, and supply-side companies are already bearing the brunt as demand for capital investment slows. 🔳 Reasons for the Sharp Decline in Japanese Semiconductor-Related Stocks Japanese companies primarily supply semiconductor manufacturing and inspection equipment rather than directly developing AI. Concerns over stricter regulations on data center construction reducing equipment demand led to significant sell-offs—e.g., Advantest dropped approximately 15%. 🔳 Semiconductor Stocks May Have Reached Their Peak in Summer Analysis indicates semiconductor-related stocks peaked in late June to early July and have since entered a downtrend. The midterm elections did not initiate the decline but rather accelerated an ongoing market correction. 🔳 Key Characteristics of a Downtrend Market In an uptrend, both highs and lows rise; in a downtrend, both highs and lows fall. Semiconductor-related stocks have failed to recover above prior highs even after brief rebounds, exhibiting classic downtrend behavior. 🔳 Semiconductor Index at the Brink of Bubble Collapse The Philadelphia Semiconductor Index has declined approximately 40% from its peak. Panelists consider a 50% drop from peak levels as a benchmark for bubble collapse, suggesting the semiconductor market is approaching a critical juncture. ListItemIcon Why AI-Related Stocks Are Struggling to Recover After the broader market sell-off, non-AI-related stocks such as Toyota and Nintendo rebounded, but recovery among AI-linked firms like Kioxia, Tokyo Electron, Advantest, and SoftBank remained limited—indicating strong market caution regarding the future prospects of AI companies. ListItemIcon Downward Pressure on Valuations of OpenAI and Anthropic Anthropic’s implied valuation has been revised down from $2 trillion to $1.5 trillion, with some investors suggesting a fair value of $1.1–1.2 trillion. OpenAI may also face difficulties achieving its previously anticipated valuation in an IPO. ListItemIcon AI Companies Face Challenges in Raising Capital OpenAI’s planned $30 billion fundraising round attracted less than half the target amount. This reflects investor concerns over massive losses at AI firms, uncertain paths to ROI, and the availability of safer alternatives such as U.S. Treasuries yielding 5–6%. ListItemIcon Profitability Issues Hindering AI Company IPOs OpenAI and Anthropic continue to post heavy losses despite revenue growth due to enormous R&D and operational costs. As IPOs require full financial disclosure, delays in achieving profitability make it increasingly difficult to justify high valuations. ListItemIcon SpaceX’s IPO May Have Marked the Peak of Market Enthusiasm The panel suggested Elon Musk may have sensed deteriorating market conditions and rushed SpaceX’s IPO accordingly—implying that SpaceX’s listing might have coincided with the peak of enthusiasm for AI-related investments. ListItemIcon Timing Is Needed to Determine Whether This Is a Bubble Collapse The panel noted it is too early to determine whether the current decline is merely a normal correction or the beginning of a full-blown bubble collapse. During the dot-com bubble, it took approximately six months after the March 2000 peak for the collapse to be clearly recognized; similarly, clarity may emerge by year-end. ListItemIcon Global Backlash Against Data Center Construction Data centers consume vast amounts of electricity and water and generate noise pollution, fueling growing local opposition to new construction. Beyond the U.S., power shortages and infrastructure constraints exist globally—making relocation overseas no simple solution. ListItemIcon Rising Costs Due to Data Center Regulations Enhancing power infrastructure, mitigating noise pollution, and securing water resources will increase both construction and operational costs for data centers. The panel compared this trend to Japan’s stricter environmental regulations during its high-growth economic era. ListItemIcon Backlash Triggered by AI Companies’ Marketing StrategiesAI companies have emphasized to investors the potential for AI to replace human jobs and the power of the technology. However, for the general public, these messages have evoked associations with job losses and social anxiety, leading to increased resistance toward AI. 🔳 Anxiety among younger generations toward AI Analysts suggest that fears of future job loss due to AI have contributed to increased Democratic support among younger demographics. Beyond layoffs, the slowdown in hiring new graduates and young talent has become a serious concern for young people. 🔳 Potential for global expansion of AI regulation The panelist noted that AI-induced employment anxieties are spreading beyond the U.S., potentially prompting governments worldwide to strengthen regulations. In China, measures regulating AI adoption and corporate hiring practices may be introduced to mitigate youth unemployment and social unrest. 🔳 AI technology should be adopted gradually Rather than rejecting AI technological progress itself, it was argued that adoption should unfold over 20 to 30 years while carefully considering its societal and employment impacts. Rapid technological deployment and excessive hype have fueled public backlash. 🔳 Difference between momentum investing and value investing Momentum investing prioritizes stocks exhibiting upward price trends, with the expectation of selling at even higher prices. Value investing, by contrast, emphasizes a company’s financial health, profitability, dividends, and undervaluation—approaches the panelist actively employs. 🔳 Focus on undervalued, financially sound companies The panelist targets companies in easily understandable industries such as retail, apparel, steel, materials, and automotive parts. By selecting undervalued stocks with strong financials, solid performance, and consistent dividends, the strategy aims to minimize downside risk while pursuing returns. 🔳 Investment opportunities in semiconductor stocks Even if the AI bubble bursts, the underlying technology will not disappear. Should semiconductor-related stocks become significantly undervalued, they could present future growth opportunities. However, it is essential to carefully assess whether current prices are truly low enough. 🔳 Preference for low-risk, moderate-return investing The panelist prefers investments that avoid chasing short-term price spikes and instead target moderate returns from stocks with lower downside risk. There is no single correct investment approach; choosing a strategy aligned with one’s personal risk tolerance and investment style is crucial.