The recent sharp drop in US stocks may have revealed the beginning of the bursting of the AI bubble!

Strategists point out that the recent bloodbath in the US stock market may signal the end of the artificial intelligence-driven tech stock bubble.

Paul Dietrich, Chief Investment Strategist at B. Riley Wealth Portfolio Advisors, has been warning of an impending economic recession and stock market crash for months, especially as the market's enthusiasm for artificial intelligence gradually wanes.

In a memo on Tuesday, Dietrich stated that the recent sell-off triggered by weak economic data further supported his argument, leading to the Nasdaq Composite Index (IXIC) falling into correction territory.

He highlighted similarities between the recent stock market decline and the bursting of the dot-com bubble. Apple's market value fell by 79% in the early 2000s and has dropped by 8% in the past month. Amazon lost 93% of its total market value during the dot-com bubble era and has fallen by 18% in the past month.

Dietrich pointed out that the flow of "smart money" in the market also indicates that tech stocks may continue to decline.

He noted that tech company CEOs like Jeff Bezos have initiated large-scale stock sales, with Bezos selling $13.5 billion worth of Amazon stock so far this year. Securities filings show that Meta CEO Mark Zuckerberg has sold approximately $1 billion of company stock, while NVIDIA CEO Jensen Huang has sold nearly $5 billion worth of company shares since the summer.

Dietrich said, "These investors do not believe their company's stock is a bad investment, they just think the market currently values them far above their actual worth."

Meanwhile, Dietrich suggested that the economy may be heading towards a recession, which is further bad news for the stock market. According to Dietrich's previous notes, historically, when the economy enters a recession, US stocks typically fall by 36%, even if the recession is proven to be mild.

Dietrich pointed out a series of indicators that may suggest an impending recession. He mentioned that the market is experiencing one of the longest bull markets in history, and corporate earnings have been "unstable"; interest rates in the economy remain at their highest levels since 2001; at the same time, the economy has triggered multiple recession warnings, such as an inverted yield curve and unemployment rates exceeding key thresholds typically associated with recessions.

Dietrich said, "What evidence do people need to realize that we are entering the recession phase of the business cycle? Ultimately, we will experience another prolonged bear market."

Although Dietrich did not make an exact prediction of when an economic recession might occur, he suggested that the economy may start to experience a mild recession by the end of the year.

Citing historical stock market declines during economic recessions, he suggested that this could lead to the S&P 500 index falling by up to 40%.

Last week, the slowdown in the job market in July exceeded expectations, raising concerns about an economic recession and fears that the Federal Reserve may have made a mistake by keeping interest rates too high for too long Investors are increasing their bets on a steepening yield curve, even expecting an emergency rate cut before the end of the year, a move that the Federal Reserve would only take during periods of extreme market volatility