What’s the underlying logic and truth behind the Nasdaq hitting new highs? It’s not because the U.S. economy is doing great. It’s the result of three factors: changes in index structure + AI capital expenditure + concentrated capital flows. First, the index is no longer the “average” of the U.S. economy. The Nasdaq 100 hit a new high last week, but out of its 101 components, 55 are still below their 50-day moving average. Only 43.56% of stocks are rising. Historically, this number averages 71.5%. The index is climbing, but most stocks are falling. The ones driving the gains are Nvidia, Apple, and Microsoft. The other 98 stocks? They’re dropping. “The index is in the clouds, while individual stocks are stuck in the mud.” Half of U.S. stocks have already entered a bear market❗️ Second, AI capital expenditure is propping up high interest rates. Microsoft, Google, Amazon, and Meta are projected to spend over $600 billion in capital expenditures by 2026. The 10-year U.S. Treasury yield is at 5.3%, and the 30-year yield is at 5.69%, both hitting their highest levels since 2002. Yet capital is flowing toward the giants instead. Why? Because companies that can generate stable cash flow are becoming increasingly scarce. Third, AI’s “capital cycle” is creating a self-reinforcing buying spree. The giants spend billions on chips. Nvidia and power equipment suppliers rake in revenue, profits soar. Stock prices rise, pushing the index higher. Passive funds flow in, continuing to buy the largest-weighted companies. But the cracks are widening. Alphabet, Amazon, and Meta’s free cash flow has already turned negative. Their AI capital expenditures are increasingly reliant on debt financing. This is different from 2023, when the Big Seven were flush with cash and high interest rates didn’t hurt them. Now, they’re starting to borrow. The Nasdaq’s new highs are fueled by one thing: faith in AI. If that faith collapses, U.S. stocks will crash!