Over the past two decades, the financial world has experienced numerous speculation bubbles, each more dramatic than the lastIn 2000, a warning was issued regarding the overvaluation of the internet sector, foreseeing the infamous dot-com bustFast forward to 2006, and the housing market in the U.S. found itself in a precarious situation, leading to a notable bubble that culminated in the 2008 collapseJust last year, the alarm was sounded again, this time about soaring prices across stocks, bonds, real estate, and even art — a situation some deemed a ‘super bubble.’

Today, a legendary investor who has accurately predicted such calamities in the past has turned his vigilant eye towards one of the most discussed topics in finance: Artificial Intelligence (AI). He has publicly cautioned that the relentless hype surrounding AI represents a classical bubble, following the same trajectory as previous historical bubblesThis assertion is not without meritThe current climate around AI has led to an unprecedented influx of capital into the sector, resulting in inflated valuations that bear striking similarities to the exuberant periods surrounded by past financial disasters.

The recent data paints a staggering picture of the marketThe combined market capitalization of America’s technology giants is now astronomicalAs of last Friday, the figures were staggering: Amazon's valuation soared to $2.2 trillion, Tesla reached $1.1 trillion, and Nvidia achieved an incredible $3.4 trillionGoogle's market cap stands at $2.1 trillion, Meta at $1.4 trillion, Microsoft at $3.1 trillion, while Apple leads with an impressive market cap of $3.6 trillionThese seven companies collectively amassed nearly $17 trillion, dwarfing the total market cap of A-shares, estimated at a mere 86.5 trillion yuan, or around 12 trillion dollarsThis means that the market capitalization of these tech powerhouses surpasses that of the entire A-share market by over 40%, marking them as leviathans in the global financial complexion.

With such immense valuations comes inevitable risk

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Should the availability of market funds dwindle, these inflated figures could elude their foundation and trigger a turbulent downturn, reminiscent of the chaotic market fluctuations witnessed in 2022. During that year, various factors coalesced to wreck havoc on stock prices, causing considerable losses among investors.

Parallel to this cautionary tale stands an interesting indicator: many financial institutions are beginning to retreat from these tech titansData revealing a trend in the last two years shows that actively managed funds have been reducing their stakes in many of the so-called ‘Seven Sisters’ of American stocksThis suggests an evolving sentiment among seasoned investors who may view the tech sector's growth trajectory as precarious.

Notably, one of the most prominent figures in investing, Warren Buffett of Berkshire Hathaway, has trimmed his holdings in Apple consecutively over four quarters since Q4 of 2023, lowering his shares from 905 million to about 300 million, with expectations of further reductions.

Furthermore, the acclaimed investor and founder of the quant fund, Jim Rogers, has warned that the global market euphoria could lead to a crisis, affirming that he has dramatically reduced his positions in the market.

These insights lead to the anticipation of significant volatility for the U.S. tech giants in the coming monthsHistorically, before a major sell-off or crisis, the market often enjoys a temporary phase where stock prices remain buoyant, illustrating why despite prominent sell-offs, stock values may not exhibit immediate declines.

Contrasting this scenario is the position of A-share technology companiesPredominantly, A-share tech enterprises are still in their nascent stages, lacking the advanced technological research, market share, and brand equity compared to their U.S. counterpartsYet, this gap opens up a plethora of opportunities for growth and investment

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