AI stocks are echoing a 1990s market split. JPMorgan warns the next few weeks are critical

In our call of the day, JPMorgan strategist Jason Hunter raises fresh alarm and offers a historical perspective on this relationship.

If hyperscalers struggle to get past important technical resistance levels “and come under renewed pressure for whatever reason over the near-term, while the semiconductor group is still trading below its key resistance, what started as a rotation within the AI-theme could feed into a more concerning unwind,” he told clients on Wednesday.

Hunter explained that a similar setup was seen in the later stages of the 1990s internet boom between two other tech groups. Michael Cembalest, chair of market and investment strategy for JPMorgan Asset Management, weighed in on that in a podcast for the bank that aired Wednesday.

“So you had this period in the market where the front end, which were the communications-services stocks, started to flatline, but the infrastructure stocks kept going, and it was a bit of a head fake to the market,” Cembalest said.

Currently, stocks of hyperscalers at the front end of the AI boom are stagnating with falls in free cash flow, while chips, infrastructure providers and optical networking gain. “There are some parallels here that I think we need to think about because you always want the caboose going fast, slower than the front of the engine, and that’s not what’s happening,” he said.

Hunter’s chart from a July 1 note shows what happened during the late internet boom era:

Hunter noted that, since early July, the SOX index has corrected 20% and the hyperscaler group “has bounced within its broad 2026 trading range.”

The optimist view of this is that renewed support for hyperscalers within those trading ranges “represents a rotation away from the crowded hardware segment of the market, which ultimately makes the broader AI theme more durable in the months and quarters ahead,” he said.

“The pessimists would highlight that a similar convergence occurred in the second quarter of 2000, which ultimately marked the top for the market cycle,” said the strategist. “From a technical perspective, both arguments have merit, which in our view makes the next few weeks of price action critical.”

He warned that the SOX must clear short-term resistance of 12,769 to 13,333, following its pullback from a June high. If not, it could slide back to a zone of 9,975-10,554, meaning a bigger pullback of 28% to 32% from its June peak.

That said, if the SOX lurches toward that lower support level in the next few weeks, that could be viewed as “a tradable buying opportunity.”

As for the hyperscalers, the strategists said breakouts through resistance zones “would represent an important bullish signal for that group after months of underperformance.”

He went through levels to watch in some of the big-name stocks:

• Alphabet must clear its 50-day moving average at $368 and the $381 level around which it stabilized after a spring correction, he said. Shares are hovering at $328 in premarket trades Thursday.

• Amazon shares must clear the $251-to-$258 resistance area to “confirm a resumption of the broader bull trend.” After that, the next destination for shares is $278, the top of an upward sloping technical trend line, he said.

• Meta’s recent rebound from the $525-$553 area stalled out around $669 to $694, and a break through the latter would mean “a powerful bullish signal for the stock,” he said.

• Finally, Microsoft’s stock has been seeing crucial technical support around the $350 area but is now trading well below the $465-to-$493 medium-term resistance range. Some goals laid out by Hunter: a move past the 50-day average of $400, a 61.8% retracement from May at $421 and finally a push past its 200-day moving average at $438.

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