U.S. Stock Bubble Manifested: 3 'Demon Stocks' Going Wild

• News
• 2024-08-06

AI chip hegemon NVIDIA (NVDA.US) remains the most searched and actively traded stock on the Interactive Brokers trading platform, indicating that global investors still have an extreme preference for this fundamentally strong tech giant over meme stocks that lack fundamental support. However, it is rare for "emerging demon stocks" that have skyrocketed from around $1 to record levels in just a few days to appear on Interactive Brokers' statistical list. This irrational investment sentiment may indicate that as the US stock market benchmark index—the S&P 500—hovers near its historical highs, the irrational fervor of speculative investment in the US stock market is exceptionally strong, and the US stock bubble seems to be in a state of accelerating expansion.

Interactive Brokers' Chief Strategist Steve Sosnick said on Tuesday Eastern Time that he was unfamiliar with three names—Oklo (OKLO.US), Bright Minds Biosciences (DRUG.US), and 180 Life Sciences (ATNF.US)—that have rapidly jumped into the list of the top 25 most actively traded stocks and options on its securities trading platform. This phenomenon of "demon stocks" with significant price increases in just a few trading sessions is rare, attracting a large amount of capital and successfully entering the top 25 of Interactive Brokers' popular stock list, suggesting that speculative sentiment under the bubble is extremely excited.

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Oklo ranks eighth on the list, a US nuclear power company focused on small nuclear reactors. The stock price of this nuclear power startup, supported by substantial investment from OpenAI CEO Sam Altman, has soared by about 144% in the past week. The two major US tech giants, Google (GOOG.US) and Amazon (AMZN.US), have previously stated that as they invest in the nuclear power sector to embrace nuclear energy, which is clean, efficient, and stable, they are doing so in response to the sharp increase in power demand for data centers that drive the high-efficiency operation of generative AI applications like ChatGPT.

To accelerate the expansion and construction of new data centers to meet the explosive growth in the massive computational power demands of artificial intelligence and cloud services, US tech giants such as Amazon, Microsoft, and Google have turned to nuclear energy, which is both clean and efficient, to provide uninterrupted 24-hour electricity for their expanding data centers.

Under the global decarbonization trend of the present and a long time into the future, nuclear energy, as an efficient and stable clean energy source, has become one of the most favored energy sources for tech giants like Amazon, Google, and Microsoft. This energy, which is clean, stable, and efficient, is expected to provide strong, uninterrupted 24-hour power support for their immensely large data centers. Therefore, the current support for nuclear energy from global politicians and tech companies may be stronger than at any time since the 1970s.

"OKLO is clearly a beneficiary of the AI-driven nuclear power revival, as this reactor-focused company's stock price more than doubled last week," Sosnick said. "Unlike the next two targets that have climbed significantly from $1, this short-term fervor for chasing hot spots is somewhat understandable." Sosnick is specifically referring to Bright Minds Biosciences and 180 Life Sciences, which rank 15th and 24th, respectively, on Interactive Brokers' list.

"I'll let you decide if we're seeing some bubble now," Sosnick said in the report. The stock prices of Bright Minds and 180 Life Sciences have been soaring recently. At the beginning of last week, the stock price of Bright Minds, a developer of psychiatric drugs, soared from $1.08 to $38.49 in just two trading days.

Bright Minds' stock price jumped from $2.49 to $38 in one trading day, and a day later, the company stated that it was "unaware of any significant changes" that could explain the recent significant increase in market activity. Subsequently, the stock price soared to $79.02 last Friday, eventually closing at $47.21, but even with a significant drop from $79, the increase for the day was still as high as 110%.

On Monday, Bright Minds' stock price continued to soar, with a one-day increase of up to 33%, reaching $62, after the company announced a significant collaboration with Firefly Neuroscience (AIFF.US) for data analysis related to drug development research. Ultimately, the stock price rose by 1.7%, but the current stock price is still near its historical high, showing that speculative capital in the market is still pouring into the stock.

Meanwhile, 180 Life Sciences, which focuses on the biotech field, saw its stock price soar from $1.52 last Monday to $17.75 on Tuesday after the company dramatically announced its entry into the online gambling industry, stating that it would focus on business-to-consumer online casino operations at the start of the gambling business.180 Life Sciences, after acquiring a fully integrated backend technology infrastructure to host online casinos, has officially entered the online gambling and gaming business. Given the company's long-standing focus on the biotechnology field, this latest shift in direction is quite unexpected.

Sosnick commented, "The stock quickly gave back most of its immediate gains, but still stands at about four times its previous level, which is a historic feat for the stock." On Tuesday, the stock closed at $4.69.

In its recent Global Fund Manager Survey, Wall Street giant Bank of America found that the "bubble in the U.S. stock market is rapidly inflating," partly due to the Federal Reserve's new round of interest rate easing and the rising expectations for a "soft landing" in the U.S. economy, which has driven a significant amount of capital to irrationally flood into the stock market. Bank of America's survey data shows that in October, a net 31% of fund managers indicated they were committed to increasing their stock holdings, up from a net 11% last month. A "bull-bear indicator" compiled by Bank of America has already reached 7.1, but has not yet reached the "super sell signal" level of 8.0.

David Rosenberg, a well-known American economist and founder of Rosenberg Research, has been warning for months that a crash in the U.S. stock market could occur. He previously warned of a potential 39% pullback in the U.S. stock market, which is one of the more extreme forecasts on Wall Street, stating that most investors are optimistic about a soft landing due to the robust performance of the U.S. economy and the downward trend in policy interest rates.

Rosenberg recently said in a report to clients, "Watching the market now is like watching a clown blow up a balloon; when this huge bubble bursts, the spectacle will be quite spectacular."

Rosenberg pointed out that investors need to maintain a cautious attitude and avoid a herd mentality, especially in their enthusiasm for investing in large technology stocks such as Nvidia and Apple. Instead, he suggests that investors should focus on stocks with strong business models, robust earnings growth rates, and good prices, and add some "hedge factors" to their investment portfolios.