Matrix of Alpha Edge Metrics
Matrix of Alpha Edge Metrics
Did the AI Bubble Really Burst? Nasdaq's November Rally Examined
The Nasdaq Composite jumped 2.7% on a single day in late November 2025, fueled by gains in chip stocks and tech giants. Headlines shouted about a resurgence, a recovery, even the end of the so-called "AI bubble." But let's peel back the layers of hype and look at what the numbers actually tell us.
Semiconductor companies like Broadcom, AMD, and Micron saw significant gains. Tesla and Alphabet (Google's parent) both added more than 6%. These are big names, no doubt. But a single day's rally, even a substantial one, doesn't necessarily signal a long-term trend. It's a data point, and a noisy one at that. Stock Market News, Nov. 24, 2025: Nasdaq Rallies 2.7%, Driven by Google, Chip Stocks
What is interesting is the narrative shift. Just a week prior, fears of an AI bubble were rampant. What changed? Several factors appear to be at play. President Trump's "very good telephone call with President Xi" and plans to visit Beijing injected optimism into the market, particularly for companies with significant Chinese operations.
More crucially, the revived hope for Federal Reserve interest rate cuts next month seems to be a major catalyst. San Francisco Fed President Mary Daly publicly supported lowering rates, echoing similar sentiments from Fed governor Christopher Waller. This shifted the probability of a December rate cut from 71% on Friday to over 80% on Monday, according to interest-rate futures prices tracked by CME. A week earlier, that probability was only 42%.
Here's where the analysis gets interesting. Are these tech stocks rallying because of genuine, sustainable growth in the AI sector, or are they simply responding to the prospect of cheaper money? The data suggests the latter is a more significant factor. Lower interest rates make borrowing cheaper for companies, which can fuel investment and expansion, regardless of the underlying fundamentals of the AI market itself.
It's a bit like inflating a balloon. You can pump more air in (lower rates), making it bigger, but if the balloon has a weak spot (an overvalued AI sector), it's still prone to bursting. The question is, how much of the rally is "real" growth, and how much is just hot air from monetary policy? Details on the true growth rate of the AI sector remain scarce, but the market reaction to interest rate cut possibilities is clear.
And this is the part of the report that I find genuinely puzzling: the market's reliance on rate cuts. Are we so addicted to cheap money that even the slightest hint of it sends stocks soaring, irrespective of actual innovation or market demand? This isn't a sustainable model for long-term economic health.
Consider Bitcoin, which traded at around $89,000. Last week, it experienced its worst weekly loss since February. This volatility highlights the speculative nature of the market. While some see Bitcoin as a hedge against inflation, its price swings suggest it's more of a barometer of risk appetite. When investors are feeling optimistic (often fueled by expectations of lower rates), they pile into speculative assets like Bitcoin and high-growth tech stocks. When fear creeps in, they run for the exits.
Overseas, European defense stocks fell after progress in peace talks with Ukraine. European natural-gas futures also dropped. These are rational responses to geopolitical developments. The tech rally, however, feels less grounded in tangible reality and more in hope for future monetary easing.
The Nasdaq's November rally wasn't necessarily a sign that the AI bubble has burst or that the sector is experiencing a genuine resurgence. It was, more likely, a market responding to the expectation of lower interest rates, coupled with a dose of optimism about US-China relations. The underlying fundamentals of the AI sector still need closer scrutiny. A single day's jump doesn't erase the concerns about overvaluation and unsustainable growth. The market may be celebrating, but a healthy dose of skepticism is warranted.
