September 15th, 2025 - Nobody knows when bubbles burst, but they do.

Investors in Oracle stock woke up one day last week about 30% richer. News about the 300bn$ order by OpenAi for its products sent the stock through the roof as traders and investors saw the next 1 trillion dollar company to be soon created. The truth is that a 300bn$ order for the next five years for a company with about 60bn$ in annual revenues means exponential growth ahead, and the stock is trading at just 40 times forward earnings for this kind of sales explosion. Of course many things can change in the next five years and this 300bn$ is not at all guaranteed, let alone OpenAi must have seamless access to capital to finance this.

The crux of the matter is that trillions are being spent by companies on AI infrastructure with very vague monetization strategies or business plans that target 2030-2035 revenues. But these long-term potential profits are already paid in huge multiples now by buyers of the AI beneficiaries' stocks, as it has become almost a mania. Manias usually evolve into bubbles throughout history. To avoid any misunderstanding, it is difficult to claim that the mega caps such as Microsoft, Alphabet or Amazon and now Oracle are trading in bubble territory, as their 30-40s P/Es are not "excessive" and are just indicative of large potential growth ahead. They are for the moment just expensive. But beneath the surface there are tens and perhaps hundreds of medium size unprofitable companies that have exploded to valuations of 50 or 100 times sales and traders/investors have flocked into them, because "they have something to do with AI". Trading accounts have exploded in numbers and margin trading has skyrocketed, as has the zero-dated derivatives trading activity by inexperienced traders, the new time-bomb in the US market. All these point to a bubble being created in the immediate future.

The 2000 Technology bubble is just "history" to today's average investor or fund manager in their 30s or early 40s. For my generation who lived through it, after having lived through just three years before the Asian markets collapse in 1997 and the Russian default in 1998, it has admittedly left scars. And these scars as well as older age might be the reason why we might be skeptical on how this new theme develops in the next 6-9 months. If that sounds a short period of time, remember that bubbles are formed very fast and they burst equally fast, with devastating results for investors. Oracle, for example, peaked in 2000 and lost 80% of its value in the following 18 months or so. It took almost 15 years to get their capital back for those who bought close to the peak and held to the stock, and 25 years later they are happy at last. Bottomline, the lesson of 2000 is those who wish to enter the market now, they must stick to the most solid names , large/mega cap companies and have a very very very long term investment horizon, in case a bubble forms and then bursts again. And please do not say or think that "This time is different" ...

Global equities had a strong week, as momentum trades came back with a vengeance. The consensus and overcrowded trades such as US Tech, European defense and electrification plays and parts of Financials rebounded strongly, with good reasons truth to be told. The Oracle news as well as the Russian drone hostilities in Poland which involved NATO forces sparked interest back to the beloved themes. The main US indices set new record highs with a 2% average gain, while Europe also had a positive week of about 1% on average. France was the outperformer as the no-confidence vote was finally a non-event for now. Swiss stocks were the outlier with a 1.5% drop, as nobody wants protection when the party is again alive. China continued to defy gravity with Hang Seng adding 4% for the week, in a volatile manner however.

The ECB kept rates on hold, with the depo rate at 2%, as expected. This was a unanimous decision in the Governing Council and President Lagarde said that the ECB "continues to be in a good place" with rates at the current level, while stressing that the Bank maintains a data-dependent and meeting-by-meeting approach and is not pre-committing to any particular rate path. While the ECB previously saw the risks to the Eurozone growth outlook as skewed to the downside, it now regards them as more balanced. With respect to inflation the ECB now sees inflation slightly below the 2% target not just in 2026, but also in 2027. Overall, the ECB’s statement and press conference support the consensus view that the ECB easing cycle is now completed, i.e. no more rate cuts in the horizon.

US inflation continued to move higher in August. The headline CPI increased 38bp, which was 5bp above consensus and on a 12-month basis, the headline inflation has now risen in each of the past four months: from a post-pandemic low of 2.31% in April, to 2.70% in July then to 2.92% in August. It appears very likely that inflation will surpass 3% in the next month's release and continue to trend up for some time. Core CPI remained above 3% which was in-line with expectations. The tariff pass-through has been moderate, but the message is clear: Core CPI consumer goods prices excluding transportation rose for the fifth month in a row, albeit at not an alarming rate. And the FED cares more about whether these goods price increases flow through to inflation expectations, including wage rises, and therefore impacts services inflation. That would be causing an alarm.

The US weekly initial jobless claims rose sharply. They spiked by 27k to 263k, well above consensus (235k), which is the highest level since October 2021 and caused the 4-week moving average to move up by 10k to 240k. Looking into the details, the move higher was largely concentrated in Texas, where initial claims came in at 39k, the highest since the first half of 2021, when severe winter storms impacted the state. The July flood which impacted the state's numbers could be still influencing the data, as last week was the deadline for filing insurance claims. We will have to wait for the next several weeks to see if the labor market is indeed worsening faster than expected.

The FED meeting on Wednesday could be a market mover, in any direction. Given the fast deteriorating labor market data, many believe it could opt for a "jumbo" cut of 50bp, as full employment is one of its dual mandates, the other being inflation. The US equity investors might be initially thrilled if this happens, especially as momentum is strong, but reality could quickly kick-in as it would really be a panic move by the FED. Then again a 25bp cut might disappoint, but it is the most sensible option for the central bank at this stage.

The USD government bond market rallied after the weak labor market data, choosing to ignore the inflation data. The 10yr yield dropped to almost 4%, only to recover slightly to 4.05% towards the end of the week. As a reminder the yield was north of 4.50% just a few weeks ago. In Europe, the German yield curve looks pinned at current levels with two opposite forces cancelling each out. On one side, the ECB's end of cutting cycle and potential inflationary pressures starting in late 2026 or early 2027 keep investors away from long-term yields, on the other hand the geopolitical situation coupled with the softening US labor market provide a natural tailwind for global bonds.

For now, the market volatility in French bonds and stocks looks to be contained. After the September 8th historic confidence vote, the first of its kind under the Fifth Republic, Mr. Bayrou resigned, as it was widely expected. It is worth noting that out of the 573 participating deputies, 364 voted against the government and 194 in favor and 16 members of the ruling party opposed their own government. President Macron had obviously prepared the ground and quickly appointed as the new Prime Minister, Mr. Sébastien Lecornu. Before becoming the PM, he was the Minister of Armed Forces. Mr. Lecornu's choice calmed the markets temporarily, but he yet has to form a government, which will have to be supported by the socialists in order to survive more than a few months. This appears to be a mission impossible, given the austere measures that have to be taken for 2026 and the situation will remain fluid.

Chart of the Week : What a bubble looks like, Nasdaq 2000

The above chart shows the Nasdaq composite index from 1997 until 2015. The late 90s was a volatile period with crises in Emerging Markets (Asia 1997, Russia 1998) causing turmoil in equity markets, but then the theme of the "explosion of the internet" emerged and anything related to this sector rallied fiercely. The media and financial analysts spoke about how everyone will be using the internet for about everything in our lives, and of course they were right. The telecom companies were also thought to be the huge beneficiaries of this new era in computing, with their valuations skyrocketing in this period. Although the theme of the internet was indeed correct in its essence, the price that investors paid to buy those run-away stocks proved to be very excessive. The bubble in the stock market burst and Nasdaq fell 75% in the next 24 months while it regained its 2000 level only 15 years later, after suffering a new large correction during the 2008 crisis. Eventually the market rallied back and soared to new record highs this year. The issue is that buying at very expensive levels almost guarantees that big returns will come only after many many years, as a big correction will always happen after excesses. The 2022 is a recent example after the pandemic bubble burst in many tech-related stocks.

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• Sources: Chart of the Week : KSH/FactSet, Photo: Dubble Bouble chewing gum