The U.S. capital markets have always been a reflection of humanity's optimism. This was evident during the 19th-century railroad era, the 20th-century automotive and electrical industries, and the internet and smartphone revolutions. With each new technology, people have tended to invest in the future while calculating the present later. This process has led to the creation of immense wealth, but it has also resulted in bubbles and collapses at times.
Currently, the U.S. stock market finds itself at another historical crossroads. The Economist, a British weekly, recently warned that the U.S. stock market has moved beyond mere optimism into a phase of 'euphoria' and 'mania.' SpaceX is cited as a symbolic example of this trend.
SpaceX has transformed the landscape of the space industry. It has revolutionized launch costs through reusable rockets, opened the satellite internet era with Starlink, and proposed a vision for human colonization of Mars. However, no matter how great a company is, the capital markets ultimately evaluate it based on numbers.
The issue lies in those numbers. SpaceX has been valued at more than 90 times its annual revenue. Within just a few days of going public, its market capitalization soared to $2.5 trillion, equivalent to Germany's GDP and surpassing the size of the French economy. Even more astonishing is that the company is not yet generating large-scale net profits.
Investors are currently betting on future potential rather than present performance. Investment banks predict that SpaceX's AI-related business revenue will grow 100-fold by 2030. In other words, the current valuation reflects expectations for the future rather than today's results.
Historically, great companies have always grown amid skepticism, as seen with Amazon and Tesla. However, there is a difference between evaluating the future and blindly believing in it.
During the dot-com bubble of 2000, investors believed that 'the internet will change the world.' This belief was not incorrect; the internet indeed transformed the world. The problem lay in the inability to distinguish between the companies that would emerge as winners in the internet revolution and those that would not. As a result, while the technological revolution was accurate, the investment returns were dismal.
Today, AI is facing a similar situation. The prospect that AI will change the world is hardly debatable. The question is how excessively current stock prices reflect that future.
The Economist expresses particular concern about the options market, which tends to show investor sentiment more sensitively than the stock market. Options are essentially insurance; investors buy put options to hedge against downside risk. However, there has been a surge in speculative short-term options trading in the U.S. market recently.
Notably, the volume of 0DTE (zero days to expiration) options has exploded. This trading resembles gambling more than investing. Even more surprising is that the price difference between call options and put options in the tech-heavy Nasdaq market has nearly vanished. Typically, put options are more expensive due to high demand for insurance against downside risk. However, speculative demand betting on price increases is currently overwhelming the market.
This is not mere optimism.
It reflects a collective conviction that the market must rise, rather than a belief that it will rise.
Looking back in history, bubbles have always ended in similar ways. The Dutch tulip bubble of 1637, the South Sea bubble in Britain in 1720, the stock market before the Great Depression in 1929, and the dot-com bubble of 2000 all followed this pattern.
All bubbles collapsed not due to technological or industrial innovation but because of human greed.
The legendary investor Sir John Templeton once said, 'Bull markets are born on pessimism, grow on skepticism, mature on optimism, and die on euphoria.'
Where does the U.S. market stand now? Many experts believe it has already moved from 'optimism' to the 'euphoria' stage.
Another investment sage, Warren Buffett, put it more simply: 'Be fearful when others are greedy. Be greedy when others are fearful.'
Currently, the U.S. market appears to be leaning more toward greed than fear. However, this does not mean a crash is imminent. Bubbles often last longer than expected. In fact, most investors make the most money just before a bubble bursts and lose the most immediately after.
Therefore, the key is not to pinpoint the timing of a crash but to manage risk. Just because the market has entered a phase of mania does not mean it will collapse immediately. In fact, mania can persist for a considerable time. However, historically, the end of mania has always been similar. When overly optimistic future projections completely overshadow current numbers, reality eventually presents the bill.
South Korean investors are no longer mere spectators in the U.S. market. With the rise of 'Seohak Ants,' U.S. stocks and ETFs have become a significant part of household assets in South Korea. Investment in companies like Nvidia, Tesla, Palantir, Microsoft, and Amazon has reached record levels.
The problem is that shocks in the U.S. market now directly transfer to South Korea. If the U.S. stock market undergoes a significant correction, the value of domestic investors' overseas stock assets could plummet, leading to a chain reaction of rising won-dollar exchange rates, foreign capital outflows, and corrections in the domestic stock market.
Particularly, individual investors in South Korea often focus their investments on U.S. tech stocks and Nasdaq ETFs. While this can yield substantial profits during upswings, it also concentrates risk during downturns.
However, South Korean investors need not be overly pessimistic. Crises always accompany opportunities. As the U.S. market overheats, maintaining a level-headed approach becomes valuable. Managing cash reserves, diversifying investments, and accumulating quality assets with a long-term perspective remain effective principles.
The AI revolution is indeed underway. The issue is not whether the AI revolution is wrong, but how much of it has already been reflected in current stock prices.
The market always reflects the future first. However, a market that has overly anticipated the future must eventually reconcile with reality.
John Templeton's warnings and Warren Buffett's advice remain relevant today. The more greed dominates the market, the more investors must maintain their composure. The party may continue, but historically, every party has eventually come with a bill.
Now is the time to assess risks rather than boast about returns. Great investors always remember that they should not get excited before the crowd but should remain calm before the crowd does.
* This article has been translated by AI.
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