Deutsche Bank warns of "tech self-cannibalization"! Aside from Google, the AI bubble has actually burst long ago
Deutsche Bank warns that the era of "self-cannibalization" in technology has arrived: AI investments have shifted from broad gains to a winner-takes-all scenario, with most tech stocks experiencing deep pullbacks of up to 80% from their highs. Beneath the surface prosperity, the S&P 500 relies heavily on Alphabet, which has surged 75% in six months, adding $1.7 trillion to its market value, while the other six companies among the "seven giants" have all retraced between 5% and 25%. Deutsche Bank bluntly states that if more heavyweight stocks fall, the risk will spill over to the macro level
On the surface, the market appears calm, but in reality, there are undercurrents. Deutsche Bank's latest research report reveals a harsh truth: the AI investment frenzy has entered a "big washout" phase, and the prosperity of the index may be supported only by one company.
According to news from the Wind Trading Desk, on February 4th, Jim Reid, the head of global macro and thematic research at Deutsche Bank, and his team released a report titled "Tech Eats Itself." The report points out that although the market experienced a rollercoaster ride at the beginning of 2026 and the returns of major asset classes are decent, a severe reshuffling is occurring within tech stocks.
Deutsche Bank bluntly states in the report that while the S&P 500 index remains close to historical highs, this is largely due to the rotation of funds into defensive sectors and the exceptional performance of certain tech giants. In recent months, the market has clearly stopped believing that "every tech stock is a winner." Under the "true winners and losers landscape," many targets related to AI, software, cryptocurrency, and private equity exposure have seen "very brutal declines."
Reid presents a shocking chart in the report (see below), detailing the drawdown from 52-week highs of selected U.S. tech stocks, related stocks, and private equity firms with relevant exposure. The conclusion is straightforward: in the broad area of "non-core weights," many targets have retraced by dozens of percentage points, with some nearing 80%.
Is Google the "lone hero"? It masks the brutal declines of tech stocks.
Data does not lie, but averages can obscure the truth. Deutsche Bank's research finds that while the "Magnificent Seven" index, representing core U.S. tech assets, has only dropped about 1% from its peak, this is entirely a statistical "mirage."
The reality is that six of the companies in the "Magnificent Seven" have seen their stock prices decline between 5% and 25% from their highs. So, what is supporting the index? The answer is simple: Alphabet (Google).
The report breaks down this data anomaly in detail:
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Alphabet's counter-trend surge: Over the past three months, Alphabet's stock price has risen nearly 25%; if extended to the past six months, the increase reaches an astonishing 75%.
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Trillion-dollar market cap increase: This 75% increase translates to approximately $1.7 trillion in market cap growth.
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Stark contrast: To help investors understand the magnitude of this number, Deutsche Bank points out that most companies outside the "Magnificent Seven" have market caps primarily in the tens of billions, with only a few reaching hundreds of billions Jim Reid bluntly pointed out in the report: "Alphabet's earnings over the past six months have offset a significant portion of the losses from other companies in the group." This largely explains why the S&P 500 index has remained near historical highs despite a massive sell-off in many tech stocks.
Market Logic Shift: From "Spreading the Wealth" to "Winner Takes All"
Deutsche Bank warned in its "2026 World Outlook" published last November that while AI is transformative, identifying long-term winners in the early stages is almost purely speculative. At that time, the market seemed very confident that it knew who the winners were, and now that confidence is collapsing.
The report emphasizes that there has been a decisive shift in market sentiment over the past few months.
"The market has clearly shifted from the mindset of 'every tech stock is a winner' to a harsher reality: a true winner versus loser landscape."
In this new market environment, what kind of companies can survive? Deutsche Bank reiterated its long-term view: the true long-term beneficiaries will be those companies that can deploy truly effective AI tools. These tools must have the following characteristics:
- Ultimately become inexpensive;
- Be scalable;
- Be able to bring meaningful productivity improvements.
He further pointed out that in reality, this may correspond to: large organizations with data-intensive, rules-driven workflows—in such processes, AI is more likely to "significantly change output efficiency." This also means that the AI investment narrative may gradually shift from "concepts and computing power" to "who can deliver cost reduction and efficiency improvement."
Risk Spillover Point: If More Mag 7 Join the "Loser List," It Will Truly Impact the Macro
At the end of the report, Deutsche Bank provides a clear risk warning: the current index remains stable, largely relying on the structural support of heavyweight stocks; however, if the "disruption" of the tech cycle continues to spread, once more members of the Mag 7 are also pushed into the "loser list," the impact may no longer be limited to the tech sector but could "properly spill over into macro."
Within the framework of "tech self-cannibalization," the market's focus is not just on whether AI can change the economy, but at what speed and in what ways it will rewrite the existing moats of tech companies.
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