AI Bubble Shows Dot-Com Parallels as Nasdaq Crashes 4%, June 06

The Nasdaq Composite fell 4.18% to 25,709.43 on Friday, marking its worst day since April 2025, as investors fled chip stocks amid growing doubts about AI profitability. Bridgewater Associates founder Ray Dalio warned that the booming AI market shows signs of a bubble similar to the dot-com era and 1929 Great Depression. The selloff started after Broadcom failed to raise its AI chip outlook, raising questions about whether companies can justify massive AI spending with real returns.

Broadcom’s Weak Forecast Triggers Chip Rout

Broadcom shares fell nearly 8% on Thursday and another 8% Friday after the company disappointed investors with its AI chip guidance. The iShares Semiconductor ETF dropped 10% on Friday, its worst day since March 2020. Marvell Technology fell more than 16%, while Intel and Advanced Micro Devices each dropped around 11%. Micron Technology, a recent bull market star, crashed 13% after falling 8% on Thursday. Investors had been waiting for a reason to take profits after holding semiconductor stocks through a strong two-month rally.

Dalio Warns of Bubble Bursting When Wealth Converts to Cash

Ray Dalio told Bloomberg that “all great technology changes produce bubbles” because investors struggle to price innovation accurately. He said bubbles burst when investors convert wealth into cash, which happens when financial conditions tighten or debt pressures mount. Dalio noted that current AI valuations show signs of overheating, with conditions resembling levels seen during the dot-com era. However, he remains optimistic about AI’s long-term productivity gains and does not dismiss the technology itself.

Goldman Sachs Questions Economic Justification for AI Spending

Goldman Sachs analyst Jim Covello said companies are investing heavily in AI but the profit needed to justify such spending is growing. “Over the last couple of years, we’ve gotten further away from that understanding of economic benefit rather than closer to it,” Covello said. Investors are confusing betting on AI technology with betting on AI stocks, which can be expensive even if the underlying technology proves valuable. Historical patterns show that star companies chased during technology booms often went bankrupt or stagnated for a decade, even as the underlying technology ultimately prevailed.

Broader Market Weakness and Inflation Pressures

The S&P 500 dropped 2.64% to 7,383.74, while the Dow Jones fell 1.35% to 50,866.78. The S&P 500 posted its first negative week in 10, down more than 2% for the week. Bitcoin fell below $60,000 for the first time since late 2024, signalling a retreat from speculative assets. A stronger-than-expected May jobs report pushed Treasury yields higher, adding pressure to growth stocks. Meanwhile, UK house prices fell 0.1% in May, and inflation remains elevated at 3.8% PCE in April 2026, the highest since May 2023.

Final Thoughts

With Broadcom’s weak guidance and Dalio’s bubble warnings, the market is repricing AI stocks lower. Investors should watch whether AI spending produces measurable returns or continues to drain corporate profits without justification.

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