A 'more concerning unwind' is the risk, says strategist

Artificial-intelligence stocks aren't moving together - reminiscent of the dot-com bubble.

Alphabet and Tesla kicked off big tech earnings to a weak reception as both boosted artificial-intelligence spending plans, amid continued investor fretting over that potential payout.

Signs of more spending boosted Asian chip makers like SK Hynix (KR:000660) and Samsung (KR:005930), which reinforces this year's price action where AI spenders are punished and AI recipients are rewarded. The Roundhill Magnificent Seven exchange-traded fund MAGS is up about 1.5% versus a 70%-plus gain for the PHLX Semiconductor Index SOX.

Our call of the day, JPMorgan strategist Jason Hunter raises fresh alarm and offers a historical perspective on this relationship.

If hyperscalers struggle to get past important technical resistance levels, "and come under renewed pressure for whatever reason over the near-term, while the semiconductor group is still trading below its key resistance, what started as a rotation within the AI-theme could feed into a more concerning unwind," he told clients on Wednesday.

Hunter explained that a similar setup was seen in the later stages of the 1990s internet boom between two other tech groups. Michael Cembalest, chair of market and investment strategy for JPMorgan Asset Management weighed in on that in a podcast for the bank that also published Wednesday.

"So you had this period in the market where the front end, which were the communications services stocks, started to flatline, but the infrastructure stocks kept going, and it was a bit of a head fake to the market," Cembalest said.

Currently, stocks of hyperscalers at the front end of the AI boom are stagnating with falls in free cash flow, while chips, infrastructure providers and optical networking gain. "There are some parallels here that I think we need to think about because you always want the caboose going fast, slower than the front of the engine, and that's not what's happening," he said.

Hunter's chart from a July 1 note shows what happened during the late internet boom era:

Hunter noted that since early July, the SOX index has corrected 20% and the hyperscaler group "has bounced within its broad 2026 trading range."

The optimist view of this is that renewed support for those hyperscalers within those trading ranges "represents a rotation away from the crowded hardware segment of the market, which ultimately makes the broader AI theme more durable in the months and quarters ahead," he said.

"The pessimists would highlight that a similar convergence occurred in the second quarter of 2000, which ultimately marked the top for the market cycle," said the strategist. "From a technical perspective, both arguments have merit, which in our view makes the next few weeks of price action critical."

He warned that the SOX must clear short-term resistance of 12,769 to 13,333, following its pullback from a June high. If not, it could slide back to a zone of 9975-10554, meaning a bigger pullback of 28% to 32% from its June peak.

That said, if the SOX lurches toward that lower support level in the next few weeks, they view that as "a tradable buying opportunity."

As for the hyperscalers, the strategists said breakouts through resistance zones "would represent an important bullish signal for that group after months of underperformance." He goes through some levels to watch out for some big names.

-- Alphabet GOOGL must clear its 50-day moving average at $368 per share and the $381 level around which it stabilized after a spring correction, he said. Those shares are hovering at $328 in premarket.

-- Amazon AMZN shares must clear the $251 to $258 resistance area to "confirm a resumption of the broader bull trend." After that, the next destination for shares is $278, the top of an upward sloping technical trend line, he said.

-- Meta's META recent rebound from the $525-$553 area stalled out around $669-$694, and a break through the latter would mean "a powerful bullish signal for the stock," he said.

-- Finally, Microsoft MSFT has been seeing crucial technical support around the $350 per share area, but is now trading well below the $465 - $493, medium-term resistance range. He lays out some goals: a move past the 50-day average of $400, a 61.8% retracement from May at $421 and finally its 200-day moving average at $438.

The markets

U.S. stock futures (ES00) (YM00) (NQ00) are all down about 0.4%. Oil prices (CL.1) (BRN00) jumped 3% after Yemen's Houthis said they struck two Saudi Arabian oil tankers in the Red Sea.

 
Key asset performance                                                Last       5d      1m      YTD     1y 
S&P 500                                                              7498.96    -0.97%  1.91%   9.55%   17.93% 
Nasdaq Composite                                                     25,690.90  -2.20%  0.84%   10.54%  22.22% 
10-year Treasury                                                     4.68       12.10   28.50   50.80   27.80 
Gold                                                                 4096.5     2.93%   1.36%   -5.44%  21.51% 
Oil                                                                  90.02      13.12%  25.95%  56.80%  36.06% 
Data: MarketWatch. Treasury yields change expressed in basis points 

The buzz

Alphabet $(GOOGL)$ beat earnings expectations but Google's parent company increased its spending guidance and reported negative cash flow for the first time since its 2004 initial public offering.

Tesla $(TSLA)$ sales were ahead of forecasts, but profit fell short and shares are down more than 5%.

Texas Instruments $(TXN)$ and STMicroelectronics $(STM)$ shares are both falling, even as the two analog semiconductor makers beat analyst earnings expectations thanks to demand from data centers, industrials and autos.

ServiceNow stock (NOW) is climbing after the software group topped revenue expectations and lifted its forecast. Check out MarketWatch's interview with the CEO.

IBM $(IBM)$ cut its outlook after a revenue warning last week.

Weekly jobless claims are due at 8:30 a.m.

Surging IPO activity is one of the four horsemen of a market bubble, says this portfolio manager.

Top tickers

These were the top-searched tickers on MarketWatch as of 6 a.m.:

 
Ticker  Security name 
TSLA    Tesla 
NVDA    Nvidia 
SPCX    SpaceX 
MU      Micron 
GOOGL   Alphabet 
TSM     Taiwan Semiconductor Manufacturing Co. 
AMD     Advanced Micro Devices 
NOW     ServiceNow 
AAPL    Apple 
MSFT    Microsoft 

Dinner-plate sized goldfish are invading Canada.

-Barbara Kollmeyer

This content was created by MarketWatch, which is operated by Dow Jones & Co. MarketWatch is published independently from Dow Jones Newswires and The Wall Street Journal.

(END) Dow Jones Newswires

July 23, 2026 07:02 ET (11:02 GMT)

Copyright (c) 2026 Dow Jones & Company, Inc.