'Most companies are essentially failing': Experts warn of a disturbing disparity between 'old' and 'new' era stocks

Bifurcation isn’t new — but it’s reached a drastic level

Though this bifurcation started back in 2022 — when the contemporary bull market germinated — the imbalance has been getting remarkably more pronounced over time. Even if the reasoning behind why some in one category are besting some in the other is sound, Paulsen questions “how sustainable a bull market is where most companies are essentially failing.”

In mid-May, 5% of the components of the S&P sank to 52-week lows while the overall index was at a record high — only the fourth time in recorded history that such a phenomenon has taken place. And over the last two months, new era AI stocks have performed, on average, nearly seven times better than the rest of the index (up 36.2% vs. 5.3%).

Even more worrying is that some of the forerunners are pulling ahead of even Apple (NASDAQ:AAPL), Amazon (NASDAQ:AMZN), Alphabet (NASDAQ:GOOG) and the rest of the almighty Magnificent 7 despite never having actually turned a profit. (Others, meanwhile, have notoriously overinflated valuations and earnings.)

Your own portfolio comes down to risk tolerance

Joining the AI party can indeed precipitate some big wins, but it also carries a lot of risk. Experts like Burry have called out the sector’s “supply-side gluttony” via “catastrophically overbuilt” infrastructure that is being scaled largely in response to hype rather than paying end-user demand.

As he wrote on his own Substack earlier in May, “stocks are not up or down because of jobs or consumer sentiment. They are going straight up because they have been going straight up [based] on a two-letter thesis (AI) that everyone thinks they understand.”

Whether you want to credit AI for kicking off a new industrial revolution or you expect the obsession to eventually ebb from its present heyday, there’s no denying that the tech’s impacts on nearly all facets of daily life have been monumental, indelible, and above all, unprecedented — up to and including its hold on the stock market. But, how much true faith you have in AI’s future and the degree to which you want to put your money where your mouth is, is up to you. But don’t say the Burrys and Paulsens didn’t warn you.