Strategists at Societe Generale (OTC:) warned growth-minded investors about the possibility of a bubble in the US technology sector.

The banking giant highlighted the significant market capitalization of U.S. technology companies, pointing to the recent rise in smaller stocks, contrasting with a decline in larger tech companies including the “Magnificent 7” mega-capitalists.

“With the U.S. technology sector accounting for around 35% of the S&P 500’s market capitalization, investors should be extra alert to a potential bubble burst,” Societe Generale’s global equity strategists wrote in a note.

The commentary from SocGen’s team of analysts reflects concerns that the stock market is about to fall, reminiscent of the first full-blown bear market since the 2008 global financial crisis.

The bank also pointed to historical patterns of financial bubbles and crashes, suggesting that a simple reversal in price dynamics could trigger a sell-off.

“But ‘what about the AI ​​boom?’ I hear you cry. The 2022 tech bust saw a slump of around 35% as the US 10-year bond yield rose from 1½% to 4¼%, sucking the lifeblood of valuation out of the US tech sector.

“Then the launch of OpenAI ChatGPT on November 30, 2022 suddenly created a wave of optimism not seen since the late 1990s.

“Since the start of 2023, the U.S. tech sector is up more than 100% and the S&P is up about 50%. What’s not to like?”

While SocGen’s global strategists warn of the possibility of a sharp sell-off in US equities, their US equity colleagues are more optimistic, expecting a favourable rotation out of the technology sector and broader market breadth.

Still, the global strategy team sees parallels with the 1990s and the famous bursting of the Nasdaq bubble.

“Profits for US tech companies have also risen sharply since ChatGPT was launched. But those of us who lived through the 1990s will remember that the Nasdaq bubble was fueled in part by physical investments in what turned out to be excess capacity.”

“Those Ponzi spending boosted sector profits, but never enough to justify valuations. Some skeptics have already warned that the current AI frenzy has similar hallmarks,” the strategists concluded.