Internet bubble haze reappears? Natixis Bank warns: technology stocks and options soar to extreme frenzy, several indicators hit historic highs.

Under the frenzy driven by the artificial intelligence boom, Wall Street is pushing the derivatives market into an extreme deepwater zone rarely seen in over a century. Jitesh Kumar, the commodity and derivatives strategist at Industrial Bank in France, pointed out in their latest global strategy report that global investors are flooding into the semiconductor and technology stock options market at an unprecedented speed and scale. This highly concentrated speculative frenzy has caused multiple core market micro indicators to soar to the highest extreme levels since the burst of the dot-com bubble in 2000. The market structure is showing characteristics of high fragmentation and highly crowded chips. From hot to abnormal: Technology option indicators reach historical extremes Kumar's report paints a worrisome market picture. The first abnormal phenomenon: the correlation between global cyclical stocks and defensive stocks has dropped to near zero, even lower than the period after the burst of the technology bubble over twenty years ago. In a normal market environment, cyclical stocks and defensive stocks usually show some correlation, and their near-zero correlation means that investors are no longer judging the overall market direction based on macro fundamentals but are making highly concentrated directional bets on individual industries and stocks. The second abnormal phenomenon: individual stock implied volatility is soaring simultaneously. The average one-year implied volatility of the Russell 2000 index has climbed to over 100, reaching the highest level recorded since 2014. The rare combination of low correlation and high volatility indicates that the market is entering an unprecedented phase of differentiation - investors are highly focused on individual themes and stocks, while the overall market judgment is highly convergent. The third abnormal phenomenon: index-level implied correlations have risen to the highest level since the dot-com bubble era. Industrial Bank in France pointed out that, at the beginning of June, the average stock volatility of the S&P 500 index was at the 95th percentile of historical observations, with the stock volatility of the Nasdaq 100 index reaching a peak since 2011. This data reveals a core contradiction: on one hand, the price trends of individual stocks are becoming more differentiated, while on the other hand, the index remains relatively stable due to the concentration of a few top stocks - but this stability is fragile. The "money black hole" of the chip empire: SMH and SOXX doubles in size year-to-date This in-depth report points out that the eye of the storm of this round of option frenzy is undoubtedly focused on the semiconductor sector. With the total market value of global tech giants growing exponentially in recent years, investors' trading patterns are undergoing fundamental changes. A few super heavyweight stocks led by NVIDIA Corporation (NVDA.US) and Broadcom Inc. (AVGO.US) have expanded into behemoths, and this extreme concentration of industry structure has directly transposed to indices and ETF tools. So far this year, the assets under management of the two largest semiconductor ETFs in the United States - VanEck Semiconductor ETF (SMH) and iShares Semiconductor ETF (SOXX) - have doubled in size. As of mid-June, SMH's assets under management reached $68.7 billion, with a year-to-date return of +68.78%; SOXX's size is $38.5 billion, with a return rate of +90.03% over the same period. The surge in option trading activity is synchronously rising: the nominal value of options tied to the two ETFs mentioned above has quadrupled, and the volume of options premiums traded has soared eightfold. In just the past three trading days, investors' option spending on these two funds totaled over $500 million. The absolute amount of funds flowing in is also staggering. According to data from Bank of America Corp, as of the week ending June 10, global tech funds saw weekly inflows of $12.3 billion, marking the largest weekly inflow record since at least 2017. Of that, only the semiconductor ETF SOXX saw inflows of $2.9 billion. In the previous week, the inflow amount had already reached $9 billion, setting a record fourth highest in history. The U.S. stock market has recorded net inflows for 11 consecutive weeks, setting the longest record since December 2025. It is worth noting that funds are accelerating their positions with leverage tools - the three times leveraged long S&P 500 ETF (SPXL) saw $3 billion in inflows in just one week. "Investors are buying technology stocks at an unprecedented speed," summarizes a report by Bank of America. A report released in May by Morgan Stanley MUFG Securities quantitatively compares the current market with history - the similarity between the current market and the internet bubble era has reached the highest level in 30 years. Since April, both the Nasdaq 100 index and the Philadelphia Semiconductor index have entered a steep upward channel, highly coinciding with the late stage of the bubble from the end of 1999 to the beginning of 2000. The value factor continues to lag, the momentum factor is significantly outperforming, and both the low volatility and small-cap factors are weakening - these three characteristics show a rare mirror structure between the two periods. Individual stock options battlefield: The complex game of institutional "whales" The options activity at the individual stock level is even more complex and may even show contradictory signals. NVIDIA Corporation is at the forefront. Options data shows that institutional traders have built complex bullish and bearish combinations in the NVIDIA Corporation options market: they are selling a large number of $180 call options to collect substantial premiums in the short term, while also selling deep out-of-the-money put options in the long term. This contradictory layout of "short-term caution, long-term bullishness" reflects the deep differences among professional investors in pricing the current market. Meanwhile, bulk options trading (referred to as "whale" trading within the industry) continues to be active in a broader range of tech stocks. On June 12, Benzinga tracked significant large options trades in the information technology sector - Micron Technology, Inc. (MU.US) and AMD (AMD.US) showed call buyers, while Marvell Technology, Inc. (MRVL.US), Broadcom Inc. and other targets showed bearish sentiments. The options structure interwoven between different targets further confirms the highly differentiated market situation - stock pickers are enjoying historically high opportunities for excess returns, but once crowded positions are collectively unwound, losses could be equally amplified. Earnings fundamentals: Key differences between this frenzy and the dot-com bubble One key difference between the current tech stock rally and the dot-com bubble in 2000 is that the current tech stock surge is not purely driven by sentiment but has strong fundamental support. According to data from FactSet Earnings Insight, as of the end of May, the information technology sector of the S&P 500 had a staggering profit growth rate of 54.3%, ranking first among the eleven major industries in the S&P 500, with all six sub-industries achieving positive profit growth. The annual profit growth rate of the semiconductor and semiconductor equipment industry has reached an astonishing 107%. The first-quarter overall profit growth was nearly 29% year-on-year, far exceeding expectations; the second-quarter profit expectations are also strong, with growth expected to continue to exceed 30%. Large tech companies - Apple Inc., Microsoft Corporation, NVIDIA Corporation, Alphabet Inc. Class C, Amazon.com, Inc., and Meta - have collectively driven over half of the total profit growth of the S&P 500 index, with their combined profit expected to increase by 38% year-on-year. Microsoft Corporation, Amazon.com, Inc., Alphabet Inc. Class C, Meta, and Oracle Corporation have committed to a total capital expenditure of nearly $700 billion in 2026, an 81% increase from the previous year. In other words, this AI-driven rally has a solid profit foundation, and unlike the dot-com bubble around 2000, where many ".com" companies saw inflated valuations based solely on concepts, the valuation of current AI core assets, while not low, is mostly based on explosive real profit growth. Fragile stability: Why high profit growth exacerbates volatility However, it is precisely the profit growth itself that is pushing the market towards a more unstable direction. The tech industry's profit growth has climbed to the highest level in nearly 30 years, leading to a sharp widening gap between "winners" and "losers". Industrial Bank in France points out that when profit expectations are highly concentrated in a few themes and stocks, any marginal change in future prospects - whether good or bad - could trigger significantly greater volatility than before. This environment is prompting investors to view technology and AI-related assets as tactical trading tools rather than traditional long-term stock positions. The report notes that market sentiment has risen to a level where "good news itself may exacerbate, rather than dampen, market volatility." A typical case is Broadcom Inc. - the company's financial report showed AI chip sales guidance lower than market expectations, causing the stock price to plummet by 14% in a single day, leading to a sharp decline in the Philadelphia Semiconductor index, with the market value of chip stocks evaporating over $1 trillion. When market expectations are priced to extreme levels of concentration, even a slight deviation from expectations could trigger a "reverse amplification effect". At a more macro level, the VIX fear index has risen from 15.87 since early June to 22.22, currently falling to 17.68, but the S&P 500 and Nasdaq have risen during the same period - indices with rising volatility alongside record highs historically often signal market instability. Kumar writes pointedly in the report: "Investors are increasingly viewing technology and AI-related assets as 'tactical trading tools' rather than traditional long-term equity allocations. With market enthusiasm pushed to extremely dangerous levels, even good news may not only fail to dampen volatility, but could actually become a catalyst for exacerbating future long-short games and violent rotations." Investor outlook: Opportunities and pitfalls in extreme differentiation For investors, this report from Industrial Bank in France reveals the most core dilemma of the current market. On the positive side, the historic level of diversification has created substantial opportunities for active stock pickers. When the correlation between individual stocks reaches historical lows, high-quality companies with true pricing power and performance certainty are likely to significantly decouple from traditional broad-based indices - providing a once-in-a-decade platform for fundamentally driven investment strategies. On the negative side, the risk of crowded trades unwinding is rapidly increasing. With the Russell 2000 implied volatility breaking 100, Nasdaq individual stock volatility reaching the highest since 2011, and semiconductor ETF options premium trading volume soaring eightfold, these indicators all point in the same direction: the market is severely overcrowded in a few areas. Once macro conditions change or profit expectations are downwardly revised, the negative feedback effects of collective unwinding could far exceed expectations. The stratification of liquidity is also a cause for concern. Funds are moving from mega-cap AI stocks to mid-cap stocks - in the US, the S&P Mid Cap 400 index rose 1.91% in the first half of June, while the Nasdaq fell 4.02% over the same period. This trend is also apparent in Asian markets such as South Korea. With a large amount of funds highly concentrated in high-beta core AI stocks, they are now seeking a "safer" second wave of exits, but if the trend reverses, the relative resilience of mid-cap stocks could quickly be pierced. In conclusion, for on-site investors, this high level of diversification and high volatility market environment undoubtedly presents a paradise for excellent stock pickers in the short term to achieve excess returns. However, the other side of the coin is that the eightfold premium surge in derivative markets and extreme leverage costs mean that the current trading structure is extremely crowded. Once there is even a slight change in macro policy expectations (such as changes in the Federal Reserve's interest rate path) or AI capital expenditure growth, the collective sell-off of crowded positions and long positions may easily trigger a dramatic market reversal and rotation tsunami in the entire US technology sector.