Unlike many who will read this, I think we're in an 'AI bubble' and see similarities in the buildup to the "DotCom Crash". I recently read something Vitaliy Katsenelson wrote that really got me thinking... What if the AI bubble has elements of not only the 'DotCom Bubble', but also the '2008 Financial Crisis'? In simple terms... DotCom bubble was an overvaluation of certain market segments (tech, some retail, telecom, etc.), caused by irrational exuberance and an over-investment in internet infrastructure. You might not see similarities here, but I do... Financial Crisis was essentially caused by a collapse of 'opaque housing-linked financial instruments'. Much of today's AI CAPEX is being funded through closed loop circular financing, which I'd say are ''opaque financial vehicles' in their own right. Much like the Financial Crisis, the trillions being spent on AI will have implications far and wide 'IF' things go awry. To be clear, bubbles can last a long time and I'm not suggesting it'll pop this week. Who knows? To be doubly clear, maybe there is no AI bubble at all and I'll be proven wrong. Time will tell... I'm not trying to be an alarmist as that's not my thing... In fact I'm still heavily invested in AI related names. AI is going to transform our way of life forever, much like the Internet's done over the past few decades. Doesn't mean there can't be a bubble tho'. While I'm not an alarmist, I'm also not one to keep my head in the sand and think this is at least worth thinking about, which is why I'm sharing. If you made it this far, thank you for reading... Whether you think this has any merit or not. Happy investing!
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17 Comments
ETF Go@etf.go ¡ 4h
Wise words. đ Position size matters. đ
Gary @freshstart123 ¡ 5h
Such a informative balanced post. Itâs never the rich that get holding the bag. Itâs the average Joe like me whoâs trying to level up. Thanks Scott
Junior Sosa@juniorsosa ¡ 3hEdited
Love the piece, Scott. I think you are absolutely correct; we are in an AI bubble right now.Some people don't get what a bubble is and have no idea why Jensen had to partner with those funds to come up with 500 billion to inject into the AI bubble; you have Google going negative cash flow, and that is just the beginning of the circular money that is going on right now. About 70% of cloud revenue for MSFT is coming from a non-profit AI company that is losing money.One thing I would say is that not all bubbles are going to be the same item or subject; most likely it will be a new tech or innovation, but the story ends the same way. I say we ride that bubble and make some money, but be cautious and not become one of the bagholders.We have a lot of idiots giving and taking advice, so just be careful. They are the same ones that said that the Dot-com was different back then. Do your research and stay safe out there.
Trenton Combs@tcombs ¡ 4h
Youâre comparing AI to both the dot com bubble and the 2008 financial crisis, but those were two completely different failures. AI doesnât magically become both just because a lot of money is being invested. The dot com bubble had companies with little revenue and the Nasdaq 100 reached around 104 times earnings. It is closer to 30 times today. The 2008 crisis involved trillions in bad mortgages spread throughout highly leveraged banks and household balance sheets. AI already has real demand behind it. Nvidia just reported $81.6 billion in quarterly revenue, with $75.2 billion coming from data centers. Google Cloud made $24.8 billion, up 82%, and Google said AI was a major driver of that growth. Microsoft Cloud made $59.3 billion and Microsoft has $678 billion in contracted future business. These are not companies with no customers being kept alive entirely by speculation. Some AI spending will be wasted and some stocks are definitely overpriced. That is still nowhere close to proving this is dot com mixed with 2008. Calling every partnership âcircular financingâ and every data center deal an âopaque financial vehicleâ doesnât make them mortgage backed securities. If you want to make that comparison, show the leverage, defaults and missing demand. Otherwise it is just stacking scary historical comparisons with not much else.
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