Meitav Warns of Tech Stock Bubble Echoes, Cites AI Hype

Meitav Investment House has issued a warning regarding potential parallels between the current surge in technology stocks, particularly those driven by artificial intelligence (AI) hype, and the dot-com bubble of 2000. In an October 2026 market review, Chief Economist Alex Zvezinski highlighted a growing divergence between the performance of technology stocks and other sectors within the S&P 500 index. This decoupling, with the correlation between tech and other sectors dropping to zero and even becoming negative, is reminiscent of the market behavior preceding the dot-com crash.

The review suggests that tech stocks are increasingly influenced by AI expectations rather than broader economic fundamentals. In the U.S., significant investments are flowing into AI infrastructure and data centers, while consumer spending and manufacturing show signs of weakness. Meitav also noted rising prices in energy, electrical equipment, and tech components, potentially exacerbated by AI infrastructure spending and the war in Iran. Such inflationary pressures could force the Federal Reserve to consider further interest rate hikes, risking a market downturn.

Similar concerns are emerging in China, where leading AI tech stocks have fallen approximately 40% from their peaks. Meitav attributes this to intense competition, the use of free models, and difficulties in generating sufficient returns on massive infrastructure investments. However, the firm distinguishes China from the U.S., noting that the Chinese government shoulders much of the risk and funding for data centers, potentially limiting the risk of a wider financial shock.

In Israel, the economic picture is different, with low inflation outside of housing, attributed to factors like a strong shekel, gas field development, and increased online competition. Meitav believes current interest rates are difficult to justify given weak domestic demand and could fall towards 3%. Despite low inflation, Israel's economy shows weakness, with a stagnant housing market, declining new home prices, near-zero growth in retail sales, and a widening trade deficit approaching $50 billion. Nevertheless, the Israeli stock market has recently outperformed global markets, a phenomenon Meitav suggests might be linked to political expectations rather than economic strength.

Meitav's review poses two key questions for investors: whether U.S. tech stock rallies are based on overly optimistic future profit expectations, and if Israel's economic weakness will lead to a looser monetary policy. The firm cautions investors to pay close attention to AI market developments, given the historical parallels between investor enthusiasm and economic reality.