Not a repeat of 1999! While bearish voices are rising one after another, contrarian investors have sensed a different atmosphere.

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Amid rising market pessimism, a seasoned fund manager sees a contrarian logic: precisely because a large number of investors are skeptical about the stock market, there is room for the upward trend to continue.

Global stock markets have recently continued to reach all-time highs, but bearish voices remain persistent. Famous investor and “The Big Short” protagonist Michael Burry likens the current market to the dot-com bubble, warning that the market is in "extremely thin air," and consequences are inevitable. According to Bank of America, global fund managers have cut their overweight positions in stocks by two thirds since March. However, this widespread caution, in the eyes of some market observers, constitutes the potential momentum for further stock market gains.

Wall Street’s year-end target price forecast for the S&P 500 index is rapidly approaching 8,000 points, about 8% higher than current levels. The core logic supporting this optimistic outlook is strong and better-than-expected earnings by U.S. companies, as well as the potential boost to productivity and corporate profits from artificial intelligence.

The presence of bears is itself "ammunition" for the rise

Burry compares the current market to the late 1990s internet bubble, but this analogy has a key flaw: at that time, almost everyone was bullish until the bubble burst. The popular saying then was that bears “don’t understand the market.”

The situation today is markedly different. Despite stock markets setting new highs from the U.S. to Zimbabwe, a considerable number of investors remain skeptical. The existence of these skeptics means there is room in the market for them to "change their stance"—once they turn bullish, prices can be pushed even higher.

This logic explains why, since late March, global stock markets have achieved substantial gains even as the risk list has continuously grown longer. Some negative factors have been priced in ahead of time by more investors, while positive factors—especially the unexpected strength in corporate profits—continue to deliver surprises, prompting more people to turn bullish.

AI narrative reshapes earnings expectations

The core argument supporting current stock market valuations lies in AI’s potential impact on corporate earnings. Recently, U.S. corporate earnings have seen one of the largest upgrades in decades (excluding the regular rebound after recessions), which has been an important driving force for investors’ return to the stock market.

A deeper issue is: if AI truly delivers significant productivity gains, currently seemingly high stock valuations might not only be reasonable, but even undervalued. This "hypothetical scenario" is being considered by more and more investors.

Historically, when internet technology emerged in the mid-1990s, it initially drove tech stocks higher, and then its effect on profit margins gradually spread to logistics, retail, and many other industries. AI’s diffusion path may be similar.

High market concentration, but precedents exist

Another concern in the current market is that gains are excessively concentrated—over the past month, fewer than twenty S&P 500 stocks outperformed the index. Currently, the ten largest AI-related companies account for about 40% of the S&P 500’s total market capitalization.

However, such concentration is not unprecedented. According to the book "Triumph of the Optimists," similar high concentration occurred in 1900, the 1930s, and the 1960s. Morgan Stanley data also shows that in the decade ending in 2024, as concentration increased, the ten largest market cap stocks accounted for about one-fifth of total market value, but generated nearly half of economic profit, with fundamentals supporting the “winner-take-all” pattern.

The flip side of high concentration is that more stocks have potential to catch up—and this process does not necessarily require a decline in tech stocks. Whether the AI dividend can spread to more industries will be a key variable in determining if market breadth improves.

Earnings diffusion is the core bet

In summary, the focus of current market long-short competition ultimately boils down to one core judgment: can AI-driven earnings growth spread from a few tech giants to a broader range of industries.

In the optimistic scenario, AI will expand the overall earnings pie fast enough that even if the pie is divided among more participants, each share’s absolute size can continue to grow. If this logic holds, the problem of market concentration will naturally resolve over time, rather than evolve into systemic risk.

Of course, whether this outlook can be realized remains highly uncertain. But for investors worried about an overheated market, the current abundance of bears may actually be the most noteworthy contrarian signal.

Risk Warning and DisclaimerThe market has risks, and investment requires caution. This article does not constitute personal investment advice, nor does it take into account the unique investment objectives, financial circumstances, or needs of individual users. Users should consider whether any opinions, viewpoints, or conclusions in this article suit their particular situation. If you invest based on this, you do so at your own risk. ```