Insights 
VT 
Recently, the financial market experienced an event akin to an “AI Carnival,” filled with announcements and partnerships in the AI sector. Nvidia invested $1 billion in Nokia, Microsoft extended its partnership with OpenAI, and PayPal collaborated with ChatGPT. Despite the excitement, there are signs of market fatigue, with the equal-weighted S&P index showing strain and a narrow concentration of market movements.
Nvidia’s market capitalisation increased by nearly a quarter-trillion dollars in just one day, with Microsoft gaining $80 billion. There is underlying scepticism about the sustainability of these valuations. Goldman’s research team warns that the current AI profitability is not comparable to past bubbles, as current AI leaders have strong balance sheets unlike the dot-com era. Yet, there’s a trillion dollars spent on AI infrastructure with uncertain returns.
Concerns About Market Concentration
Market concentration is severe, with 15 companies generating 90% of the S&P’s returns, signifying a lack of market breadth. The AI sector has become synonymous with the market itself. The current situation suggests a momentum-driven environment rather than genuine conviction. While AI companies are profitable, the risk of returning to self-referential loops is significant, signalling potential shifts in market behaviour soon.
With the S&P 500’s concentration now at a level we haven’t seen since the run-up in 2000, the market is stretched. As of this week in late October 2025, the top ten names in the index make up over 38% of its total value. This fatigue suggests the easy money from simply riding the biggest AI stocks is becoming a crowded and dangerous trade.
The signal for us is not to fight the trend but to prepare for a shift in volatility. The VIX has been hovering near 14, a sign of complacency that we last saw before the turbulence in early 2024. Buying protective puts on broad indexes like the SPX or QQQ is now a relatively cheap way to insure portfolios against a sudden change in sentiment.
Shifts In Market Strategy
We should also look for signs of rotation, as capital begins to quietly search for value outside of the mega-cap AI names. We are seeing early signs of this, as industrial and energy sector ETFs have started to outperform the NASDAQ 100 on a one-month rolling basis. Using call options on these cyclical sectors could offer leveraged exposure to the next phase of the market cycle.
This isn’t about shorting the leaders, but about protecting those gains with put options that now seem affordably priced. Another strategy is to look at pairs trades using options, such as going long on AI software companies with recurring revenue and short on capital-intensive chip makers whose growth is slowing. This plays on the growing dispersion between different types of AI companies.
Listening to the Q3 2025 earnings calls, we heard CEOs again promise productivity gains by 2027, yet capital expenditure guidance is finally starting to moderate. This supports the view that the explosive growth phase, which saw capex jump over 40% in 2024, is now maturing. This pause in spending is a key indicator that the momentum is slowing.
We remember from the dot-com period that the market leaders held up the longest, right before the broader index began to falter. The current fatigue feels similar to that time, not a signal of a crash, but a warning to become more selective. It is time to shift from chasing momentum to buying protection and positioning for diversification.
