Technologies
Wall Street firm warns AI stock rally may be nearing its end: key reasons
Capital Economics says that while the S&P 500 may keep rising this year, the AI‑driven rally shows multiple bubble indicators and is expected to peak within months, with a projected decline to 6,500 by late 2027.
Various signs of a market bubble indicate that although the S&P 500’s rally can continue this year, its medium‑term outlook appears weak because the market has become overly frothy, according to Capital Economics.
James Reilly, senior market economist at Capital Economics, noted on Thursday that most indicators point to the AI equity rally being close to its end.
Since mid‑2023, Capital has been more optimistic than most about the stock market, viewing AI as a transformative technology.
The firm’s year‑end 2026 S&P 500 forecast has consistently exceeded consensus estimates.
Nevertheless, Capital maintains that the AI‑driven rally is a bubble destined to burst.
To identify a late‑stage bubble, Reilly examines eight metrics: valuations, earnings, index concentration, equity issuance, and foreign interest in U.S. stocks.
Several of these metrics are already at or near levels seen before past market peaks.
While earnings expectations appear aligned with a market top, measures such as volatility and leverage are somewhat less concerning.
Earnings are the most significant warning sign.
S&P 500 earnings growth expectations are hovering at levels only seen at the dot‑com bubble peak, and long‑term EPS forecasts have reached a record high.
Reilly argues that the tech sector’s heavy concentration of this growth means any weakness in tech earnings will heavily drag on the index.
Additional warning signals are also emerging.
Index concentration is approaching dot‑com era extremes, net equity issuance has turned positive, and foreign ownership of U.S. stocks is at a record level.
Reilly warns that another wave of IPOs and share sales could be especially significant, as past issuance booms have historically coincided with market peaks.
He adds that, based on history, the bubble’s end is likely just months away, not years.
Leverage measures are not yet alarming compared with other factors, though the analyst cautions they are moving in a concerning direction.
Volatility indicators resemble those of a mid‑stage bubble, but constituent‑level volatility is not as extreme as at the dot‑com bust’s end.
Reilly expects the S&P 500 to rise from roughly 7,650 now to about 8,250 by the end of 2026, but ultimately projects a decline to 6,500 by the end of 2027.
These projections imply an 8% gain this year and a 21% drop in 2027.
Most signs point to the AI equity rally being close to its conclusion, Capital Economics senior market economist James Reilly stated on Thursday in a note.
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Technologies
Apple and Meta team up to make Muse AI model run on Mac computers
Apple and Meta are collaborating to make Muse Spark Open easier to run locally on clustered Mac Studio systems, according to the companies.
Tim Cook and Mark Zuckerberg have clashed for years, but with John Ternus taking the reins at Apple
Meta
The collaboration centers on Muse Spark Open, the most capable open-weight model released under a license that allows for limited commercial use, according to Meta. It’s an 816-billion-parameter model using a so-called mixture-of-experts architecture. As an open-weight model, developers can download the technology’s parameters, or weights, from the internet and run the model on a wide range of hardware.
Customers will be able to pair between two and four Mac Studio PCs to use Muse Spark to code, analyze video or do other agentic work. The model runs locally, instead of in the cloud, adding a layer of security and saving users money, the companies said.
Thursday’s announcement, following months of collaboration, is a sign that the AI boom has shifted historical alliances in Silicon Valley. For years, Apple and Meta regarded each other warily and avoided public partnerships, and the relationship hit rock bottom after Apple introduced privacy changes in 2021 that limited the targeting capabilities of digital ad companies.
Meta estimated in early 2022 that the change would cut its revenue that year by $10 billion.
Representatives from Apple and Meta declined to say if the Muse Spark Open collaboration was the start of a deeper relationship.
Zuckerberg posted a picture on X showing the Meta agent working on a Mac computer. He wrote, “Muse Spark Open — weights releasing today — runs great on new Mac Studios thanks to work with @johnternus and Apple.”
Ternus responded, “Congrats to the team! Amazing to run a model of Muse Spark Open’s caliber and scale this efficiently, right from your desk. Mac Studio keeps pushing the boundaries of on-device AI!”
Meta AI chief Alexandr Wang said in an interview that many powerful open-weight models are too big to be run on the majority of personal computers, but Apple’s Mac Studios make enough memory available to users so that it’s practical to run Muse Spark Open.
The move represents an important show of confidence in Meta’s rebooted AI efforts and could pose a challenge to OpenAI and Anthropic. It could also signal Apple’s growing strength in AI chips, a market that Nvidia
″We worked with Apple to bring leading Agent capabilities to your desktop for the first time on the Apple M5 Ultra Mac Studios, so you know we’re really excited about this,” Wang said. Developers can download a version of the AI model from websites like Hugging Face without extra configuration for Apple’s silicon.
Muse Spark Open has also been tuned to run faster on Apple’s hardware, and the iPhone maker revealed new benchmarks for its chips and published technical documentation about its MLX AI framework’s ability to split open-source models across multiple machines.
Mac Studios aren’t cheap though, and this AI model requires the fastest Apple chips and as much memory as possible.
Currently, a Mac Studio with the required M5 Ultra chip and 256GB of memory costs at least $10,799. A more expensive version with 512GB of RAM will be released later this month.
Plus, users will need to buy multiple machines.
Common ground on open source
The two companies are collaborating on open-source AI, which has become a point of contention in Washington as politicians worry that free Chinese models could undercut American AI.
Although Meta once centered its AI strategy on its older open-weight Llama family of models, it has since focused on creating proprietary models under the leadership of Wang, who joined Meta when the company invested more than $14 billion into his former startup Scale AI last year.
While Apple and Meta, then known as Facebook, partnered on iPhone extensions over a decade ago, they haven’t struck any public partnerships since 2017 after Apple removed system-level Facebook integration from the iPhone.
“Most of the animosity predates my tenure at the company, but obviously there’s been a long history between Meta and Apple,” Wang said, pointing to one member of his team, AI researcher and former Apple director Daniel Gross, as a reason for the collaboration. Gross, along with former GitHub CEO Nat Friedman, was a major Zuckerberg hire last year as the Facebook founder was overhauling his company’s AI strategy.
Their leaders have also traded harsh words.
Cook, who was Apple CEO until Ternus succeeded him last month, took a shot at Zuckerberg in 2018, during the Cambridge Analytica scandal, saying, “I wouldn’t be in this situation.” Cook often criticized Meta for compromising user privacy.
Ternus, a hardware engineer, has already started changing things at Apple, including when it releases products.
And Meta’s developers haven’t been able to resist Apple’s products. The company bought hundreds of Mac computers so its Superintelligence team could experiment with local AI and agents earlier this year.
Apple’s multiple partners
Meta is just the latest AI model developer to team up with Apple.
In 2024, Apple announced a partnership with OpenAI to integrate ChatGPT into Siri, although the integration “dramatically underperformed” and didn’t lead to OpenAI user growth, OpenAI said in a filing that’s part of a legal dispute with Elon Musk’s xAI. Apple sued OpenAI in July, alleging trade secret theft, a claim OpenAI denied.
Earlier this year, Apple announced a deal with Google
Still, Apple’s AI strategy has drawn criticism from investors and customers in part because its new version of Siri, released last month, isn’t as advanced as chatbots and agents from leading labs.
Meanwhile, Meta has bet big on becoming a leading lab but has struggled to keep up with the competition and its business remains almost entirely reliant on ads. Recent developments, such as Meta’s Muse personal agent app and its latest proprietary foundation model, Muse Wonder, released earlier this week, have begun to excite investors who are optimistic about new AI business opportunities.
Open source remains part of Zuckerberg’s AI strategy. In August, Meta debuted a small open-weight AI model dubbed Muse Glimmer, with Zuckerberg pledging to eventually release something bigger and more powerful.
Muse Spark Open isn’t as advanced as Muse Wonder, a proprietary offering, but Wang said it’s good enough to potentially entice more coders to upgrade.
“These aren’t the most capable models that we’ve developed or released,” Wang said. “But we think that there will be a lot of companies and developers who sort of use this model and tinker with it at small scale and then seek to ramp up and scale up their usage.”
WATCH: Apple makes its biggest smart-home push yet under CEO John Ternus.
Technologies
CoreWeave credit default swaps hit distress levels as investors sour on AI debt
Signs of distressed deepened in CoreWeave on Thursday.
CoreWeave’s credit stress continued to spiral on Thursday amid a broader sell-off in AI-related names.
CoreWeave — a so-called neocloud company — has taken on more than $51 billion of debt and obligations to finance its AI infrastructure build-out. It’s now facing a rebellion from stock and bond investors as concerns mount about AI overspending and debt levels.
Yields on CoreWeave debt have continued to climb, with the yield to maturity on its 9.75% bond due in 2031 reaching 15.78%. Bond yields move inversely to prices. Meanwhile, the spread on its five-year credit default swaps, which are insurance against default, at one point soared above 1,140 basis points. It last stood at nearly 1,038 bps — a 16% week-over-week jump and 164% higher than a year ago.
Credit concerns are spreading into AI equities too. CoreWeave’s stock dropped during trading Thursday before recovering and closing 5.94% higher. The moved followed Wednesday’s 15.5% nosedive.
Other neocloud stocks were under similar pressure. Nebius also sank before climbing higher to close 1.29% and and Iren ultimately ended the day down less than 1%.
Anxiety about AI overspending is also spreading. For instance, shares of Micron Technology and Advanced Micro Devices sold off following a big sell-off in South Korean chip stocks. Micron closed up 1.87%, while AMD fell 1.5%.
While AI debt worries have been rising steadily, investors have suddenly grown skittish about the underlying finances of companies borrowing heavily to buy chips, build data centers, and rent out computing power.
Coreweave’s credit default swaps are one place to see that stress.
Credit default swaps are contracts where buyers pay for protection in case the borrower can’t repay its debt. The spread widening in CoreWeave’s CDS means investors view the debt as riskier.
The market is “basically saying ‘no mas’ to AI debt without operating cash flow support,” the Evercore ISI trading desk said.
A spread level of 1,000 basis points or above is generally a sign of credit distress, said Gavan Nolan, executive director of fixed income pricing at S&P Global Market Intelligence.
No one is questioning whether demand for CoreWeave’s services is real, since the company has contracts with all the big hyperscalers, Nolan said. The question is whether the cash flows will ultimately arrive.
“It’s obviously heavily negative free cash flow at the moment, and it needs that cash flow to arrive really to justify all the capex that it’s spending,” Nolan said.
‘Self-fulfilling prophecy’
CEO Mike Intrator dismissed the market moves on Wednesday, according to a memo obtained by CNBC.
“When you are building a new type of technology company there will be periods of time when the market misunderstands and acts irrationally,” he wrote. “We are confident in our backlog which more than supports all of our debt obligations.”
The backlog is over $100 billion, with around two-thirds of it with investment-grade counterparts including Microsoft, Meta, IBM and Caterpillar, Deutsche Bank said in a note Thursday. The firm reiterated its buy-rating on the stock Wednesday, calling the dislocation a buying opportunity.
“The problem is this kind of concern can prove to be a self-fulfilling prophecy, and risks triggering broader issues in other AI-related names,” said Jim Reid, global head of macro and thematic research.
Domino effects may already be happening. Oracle’s five-year CDS spread also spiked this week. It was last at 282 basis points, a roughly 10% increase in one week.
“A downgrade from its BBB rating would risk pressuring IG-only investors into forced sales,” Reid said.
Technologies
Netflix Chief Content Officer Bela Bajaria is leaving, will be replaced by Peter Rice
Netflix announced Bela Bajaria will be replaced by former Disney exec Peter Rice as the company’s chief content officer.
Netflix on Thursday announced Bela Bajaria will be replaced as the company’s chief content officer by former Disney exec Peter Rice, effective Oct. 26.
Rice most recently oversaw Disney’s cable channels, news programming and coverage of major sporting events.
“Peter is one of the most effective at-scale operators in the entertainment industry,” co-CEO Ted Sarandos said in a statement. “I’m excited to welcome him to Netflix as Chief Content Officer as we continue to scale and deliver members more of the stories they love.”
Before Rice was at Disney, he held roles 21st Century Fox and Fox Searchlight Pictures. Netflix in its announcement called him “one of the entertainment industry’s most respected creative executives.” In his new role, Rice will oversee the company’s global content organization, including scripted and unscripted series, film and live events.
″[Netflix has] shown again and again that they’re willing to take chances on distinctive voices and fresh ideas, and I’m excited to work with the team to help bring even more great stories to members everywhere,” he said in a statement.
Bajaria, who is leaving Netflix after nearly 10 years, most recently worked as the company’s global content team. She had been focused on the company’s live sports strategy, looking to create events out of buzzy games and tournaments.
“I’m incredibly grateful for everything she’s done to help Netflix entertain the world,” Sarandos said in a statement.
The announcement comes a day after Netflix instituted layoffs across its organization, eliminating approximately 6% of its workforce, or roughly 1,000 jobs.
The media company will report its next quarterly earnings on Tuesday.
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