Opinion: The AI Stock Market Bubble Has Arrived. Why I'm Turning to Bitcoin Instead

Original Author: Investing Beanstock

Original Translation: Deep Tide TechFlow

Introduction: AI stocks are skyrocketing, but this trader is instead liquidating tech stocks and bottom-fishing for Bitcoin. Using Howard Marks' cycle theory to compare against the current market point by point, he finds that AI already matches nearly all the characteristics of a "bubble top." For investors, this article offers a冷静的周期定位框架, helping you determine whether now is the time for greed or fear.

The stock market is experiencing an AI-driven狂暴牛市, which shouldn't come as a surprise to anyone.

If you're not holding positions, you feel like a fool — because capital expenditure (CAPEX) will only keep rising, and the forward valuations of all these stocks will only become more insane.

I'm not going to comment on specific stocks or indices; banks and financial media around the world are already covering them in full force. I'm more interested in figuring out — or at least trying to decipher — what stage of the market we're in. Not just crypto, but the entire financial market.

To do this, I've drawn a lot of inspiration from one of my favorite books: Howard Marks' "The Most Important Thing: Uncommon Sense for the Thoughtful Investor," specifically his insights on cycles.

Most people understand a cycle as a series of events. Most also understand that these events usually follow each other in a conventional order: an upswing is followed by a downswing, which eventually leads to another upswing. But to fully understand cycles, that's not enough. The events in a cycle should not only be seen as happening one after another, but more importantly, each one causes the next to happen.

The straight line = the midpoint. The market pendulum is the wavy line oscillating around that midpoint. Together, they form the market cycle, driven by various market forces that cause it to deviate from the midpoint from time to time.

The movement of cyclical phenomena can be easily identified in several stages:

a: Recovery from the excessively depressed lower extreme or "low" back to the midpoint

b: Continuing past the midpoint towards the upper extreme or "high"

c: Reaching the high point

d: Correcting downwards from the high back to the midpoint or mean

e: Continuing the downward movement past the midpoint towards a new low

f: Reaching the low point

g: Recovering from the low back to the midpoint

h: The cycle repeats

So where are we now?

Is this a bubble? I think it's become quite obvious that AI is indeed a bubble. According to Marks, when the sentiment "price doesn't matter" is strong, it's a sign of a bubble.

In a bubble, investors often conclude you can make money by borrowing (leveraging) to buy the frenzied asset. Regardless of your loan rate or funding rate, the asset will surely appreciate faster than that.

"No price is too high" is the ultimate ingredient of a bubble, a fairly obvious signal that the market has gone too far.

There are actually conflicting schools of thought, believing that markets can be far above intrinsic value and still continue to reward multiples due to the mania.

What to do?

Since we are uncertain when the bubble will burst, in my opinion, we have two clear methods for portfolio allocation.

Dollar-cost averaging (DCA) (I mean real DCA, no timing, you just buy a little bit in a boring, mechanical way. The more batches you split into, the smoother your final cost basis becomes, which is the whole point of doing it.)

Holding heavy cash, but still allowing yourself to participate in the market through tactical/satellite positions, like active trading.

Personally, I prefer the second method. But that's because I actively monitor the market day in and day out, relying on my market experience and intuition to navigate it.

DCA is not a bad approach either. But it does require the individual to truly extend their time horizon. Not 1 or 3 years, but at least 5 years to really see some results. Most people DCA for a few weeks, or try to DCA while also timing the market, which ends up being counterproductive. If you plan to DCA a specific investment, make sure you fully understand the business/industry, then stick with it in a super boring, repetitive way and get on with your life.

In my 2025 review and reflection post, I mentioned allocating 25% of my portfolio to passive ETFs, including QQQ, SOXQ, XAR, URA, and UFO. I think a large part of that return came from QQQ and SOXQ, but I sold all of them in May because I believed the market had gone well past the midpoint.

I also said I was generally bearish on crypto until early 2026 (which turned out to be right). I managed to retain a lot of cash and am now patiently deploying some of it into BTC. The target accumulation zone is $50k-$60k, so I've already started allocating as I write this.

"Crypto is dead, move to AI"

Honestly, my only regret is not allocating more to speculative private market exposure in Anthropic and xAI. I believe frontier models still offer the purest AI exposure compared to the public market "picks and shovels" type, like the GPU/semiconductor/storage narrative. Since those are already consensus, I don't think chasing them here offers asymmetric upside. That ship has sailed long ago. Stocks like MU have gone up nearly 10x in a year, while stocks like SNDK have basically been fluctuating like memecoins. The upside might still be there, but the downside risk looks worse.

But CAPEX! Yes, this could translate into real value creation in the future, but it's still speculative. Over-speculation, too much money flooding into the same thing – I've seen this movie before.

Is it disappointing to miss a big chunk of the AI bull run? Sure, it stings a bit. But I still have exposure, and it's doubling. I genuinely don't think it's responsible at today's valuations to tell people AI stocks are really worth buying unless they truly know what they're doing and are in it for the long haul (most aren't; they're here for quick money).

Market Sanity Checklist

Now, let's go back to how Marks judges whether we are approaching/are near a market top:

The economy is growing, economic reports are positive

Corporate earnings are rising and beating expectations

Media only reports good news

Securities markets are strong

Investors are becoming increasingly confident and optimistic

Risk is perceived as scarce and mild

Investors see taking risk as a necessary path to profit

Greed drives behavior

Demand for investment opportunities exceeds supply

Asset prices exceed intrinsic value

Capital markets are wide open, easy to raise funds or roll over debt

Defaults are rare

Skepticism is low, confidence is high, meaning risky deals can be done

No one can imagine things going wrong. No favorable development seems impossible

Everyone assumes things will get better forever

Investors ignore the possibility of loss, only worry about missing out

No one can think of a reason to sell, and no one is forced to sell

There are more buyers than sellers

If the market falls, investors are happy to buy

Prices reach new highs

Media celebrates this exciting event

Investors become euphoric and carefree

Equity holders marvel at their own cleverness: maybe they'll buy more

Those who have been on the sidelines feel regret; therefore, they capitulate and buy

^ This means:

Future returns are low (or negative)

Risk is high

Investors should forget about missed opportunities and only worry about losing money

This is the time for caution!

So, how many of these do you think the current stock market is exhibiting?

On the flip side of the "market top" checklist, the opposite scenario can also occur:

Economic slowdown: reports are negative

Corporate earnings are flat or falling, missing expectations

Media only reports bad news

Markets are weak

Investors become worried and depressed

Risk is perceived to be everywhere

Investors see taking risk as simply a way to lose money

Fear dominates investor psychology

Demand for securities is lower than supply

Asset prices are below intrinsic value

Capital markets are tightly closed, hard to issue securities or refinance debt

Defaults surge

Skepticism is high, confidence is low, meaning only safe deals can be done, or none at all

No one believes improvement is possible. No outcome seems too negative to happen

Everyone assumes things will get worse forever

Investors ignore the possibility of missing out, only worry about losing money

No one can think of a reason to buy

There are more sellers than buyers

"Don't try to catch a falling knife" replaces "buy the dip"

Prices reach new lows

Media focuses on this depressing trend

Investors become depressed and panicked

Equity holders feel stupid and disillusioned. They realize they don't truly understand the reasons behind the investments they made

Those who didn't buy (or sold) feel validated and are praised for their cleverness

Those who are holding give up and sell at distressed prices, further fueling the downward spiral

^ This means:

Implied future returns are sky-high

Risk is very low

Investors should forget about the risk of losing money and only worry about missing out

This is the time to be aggressive!

Based on the checklist above, I do think BTC is exhibiting many of these items (especially the Saylor/MSTR situation). So I do feel BTC presents a more attractive investment prospect compared to the high-flying AI stocks today.

However, please note that the above progressions are simplified, they might not even occur in the same order, nor necessarily in every market cycle, but these behaviors are real, and they are indeed the rhyming elements in markets for decades.

The AI revolution has obviously benefited tech stocks, especially semiconductors over the 1/3/5 year periods.

But investing is never about looking in the rearview mirror (unfortunately, most people do this and draw references from the past). The edge lies where people overlook/dismiss it. We need to look at "what will happen from 1 to 10 years from now," not what the environment is today.

Looking at the chart above, saying you are a crypto investor and you should have invested in stocks would seem foolish.

Based on the chart above, statistically, there's a high probability that future performance will be poor if you chose stocks.

Also, reading this in 2026 might sound like a joke, but based on past cyclical lessons and understanding of forward returns/valuation fundamentals, I genuinely believe BTC will outperform stocks over the next few years.

The Most Disconnected Macro Environment Ever

We are also in one of the most disconnected, irrational market environments ever.

Under new Fed Chair Warsh, interest rates are currently maintained at 3.5-3.75%, and he has publicly taken a hawkish stance. But rates haven't compressed, and the stock market continues to rise just because AI will cure cancer and everyone will make infinite amounts of money forever, right?

The stock market's Shiller CAPE ratio has broken above 40 for the first time since the peak of the dot-com era. The US stock market capitalization is now nearly 2x its GDP, with valuations higher than during the 2000 bubble.

Valuation multiples expanding during a tightening cycle? That's the textbook definition of a disconnect.

This disconnect is primarily driven by a three-engine narrative/liquidity machine:

AI CapEx Super Cycle: Large hyperscaler cloud providers are spending up to $725 billion in 2026, approaching $1 trillion, now accounting for over 30% of the entire S&P 500.

Late-cycle fiscal stimulus: Lower corporate and personal taxes/tariff rebates boost nominal earnings, even as the Fed tightens policy.

Passive index fund flows: Index funds mechanically pour every dollar from 401(k) pensions into the largest market cap companies, regardless of price. Baby boomers are now forced to buy these hyperscaler stocks at all-time highs, and it continues.

Risk Appetite is Selective

Today, capital is flooding into AI/semiconductors, while everything else, including Bitcoin (the darling of the previous cycle), shows little growth or is bleeding. This is not a market of universal greed, but a market funnelling all capital into a single narrative (AI and its related verticals).

In 2025, AI-related stocks accounted for roughly 80% of the entire US stock market's gains. Behind these all-time highs, market breadth is extremely narrow, with most stocks not even contributing