The market is not what it used to be, and that's why I want to talk about what my real thoughts on what I think about the market To put it simply: We’re in a bubble. Yes, that’s the buzzword of the past couple years, and while it’s true it’s a lot more complicated than most realize. We've went from AI in sci-fi movies to actual feasible competing LLMs that have taken over jobs and been integrated into many company systems. Practically every business in existence has pivoted it's core principles to AI in some way. This is very bubble behaviour, you might say we're seeing "dot-com like" behaviour, but that really isn't the case. What I previously had believed is that we're not really reaching bubble territory because companies now produce profits unlike in 1999. During the dot-com peak, any business would slap an "Internet" label on their business and see 10x returns. Those businesses often didn't have any profit nor any revenue in some cases. Nowadays, big tech companies are pivoting to AI and producing some of the highest profit margins in existence. It seems obvious, we can't be in a bubble if we have so much REAL profit, right? I used to think that, but it's really not that simple. Just looking at 4 of the biggest tech companies spending ($GOOGL, $MSFT, $AMZN, $META), their quarterly combined CAPEX in 2022/23 reached just under $40 billion a quarter, in 2025 that number was between $100-150 billion a quarter. Tech is essentially betting their entire hand on the adaptation of AI. For context, $AMZN LTM of capital expenditures was $151 Billion while only bringing in $90 Billion of net income. Much of this investment has also come from deals with a lot of AI companies in what everyone knew as the "circular finance" time. Many businesses would invest in OpenAI, which then invests in other companies, which then invest back in itself, and so on. This means the entire investment of the largest sector on earth is going in a circle. Hundreds of billions of dollars are being circled between a select group of companies, many of which are only promised and not even in existence yet. Some businesses like $ORCL are going all in fully funded by debt as the business has now surpassed over $100 billion in debt to fully invest in AI. Just looking at the circular finance and CAPEX alone, I really don't trust the longevity of these investments. When 50% of the US market is going all in on basically one idea and a few companies and exponentially increasing spending, it either all works or it doesn't. AI also isn't the "savior" the market makes it out to be. Since AI saw feasibility in coding, many software or SaaS companies went underwater because investors think their businesses will completely go underwater. $CSU$NOW and other software businesses saw drops upwards of 50% in their share price due to "AI fear". The idea is that AI is getting to a point where it can competently code and take over software engineering jobs to run a business. While LLMs are becoming increasingly better at these tasks, they are by no means perfect and can't cover every aspect. Businesses like CSU aren't just about software, they're very NICHE software. The share price fell over 50% from its peak, and yet the kinds of businesses they own aren't going to be taken over by AI. A business that owns a software for school administration is not going to overhaul their entire system just to get AI integrated, they don't have thousands of employees to cut costs on. These kinds of businesses don't get turned over into AI, they're too small and specific. I also believe the market highly underestimates the amount of businesses that would actually go through the effort of overhauling their system for AI. It's not worth it for the majority of corporations to have such a change of system (one that still isn't fully reliable). There are also a lot of macro issues surrounding the AI boom. Data centres are being built across the US and taking up jobs, housing space, and also a lot of drinking water. The entire economy is essentially becoming an AI market where each business sees how much it's willing to pay to invest in AI. This is not a sustainable economy, we're dumping trillions of dollars into AI to produce high margins, but at the end of it whose going to be paying for it? 99% of the consumer population does not interact with AI regularly or would benefit from it. The economy is hinging on large companies selling each other products and investments for AI, but that's not what runs an economy. Consumers spend money on retail, healthcare, low level tech, among many other things. Data centres create some temporary jobs, but after they're finished they require very little jobs. In the short term, many companies have benefitted greatly from the AI boom. Oil and gas, energy, infrastructure businesses, power and HVAC, and all of the suppliers like memory and chip makers. The problem is returns basically rotate out of each sector every 3 months. Oil rallied, then nobody cared and it was infrastructure, then it went to energy, then chip makers, then it was memory. The most recent phenomenon has been companies like $MU and $SNDK, which have brought 10-50x returns in a year. Memory historically has been a cyclical business, but because of the AI boom there's been a shortage which essentially acted as a short squeeze for the business except earnings went through the roof. You don't just create a $1T company like Micron out of nothing, that isn't normal. The biggest problem is this "demand" for AI is very short lived and also by only a few companies. If any of these businesses turn away from AI, these shortages on components disappear and earnings go back to normal. That also means these businesses will sharply fall off and returns stabilize again, at the cost of share price. The problem is that much of this spending on AI expenditures is almost entirely unknown to what the profit will be. Tech CAPEX is purely based on speculation, that's not what you want to hear when 50% of the economy is relying on it. Revenue for most of these businesses when integrating AI, and even all the future LLM IPOs is purely projected. We really have no actual basis for what the profit levels and income will be, meaning the investing and spending is entirely made up numbers and a competition for who can spend the most. On top of all of this, valuations are getting more stretched by the day. Earnings are real but the valuations of these businesses continue to stretch further away from reasonable levels. Debt-to-equity is also through the roof on a lot of the businesses investing billions into AI without any real compensation yet. At the slightest sign of weakness, these returns will come tumbling down. Speaking globally, it's also highly unlikely that not only do we have increasing valuations on stocks, but bond rates are rising, gold price is rising, and oil prices are rising. To have simultaneous rising prices of stocks, bonds, yields, oil and metals is what happens when you create the ultimate market monster. Normally you'd rotate out of one asset into another, but in this case any asset is making money at the same time (sorry Bitcoin). To be honest, this really only touches the surface but this is a culmination of a lot of my thoughts on AI. There are so many things at play in this market, and I think that most people have failed to see the cons of AI. You will see in the coming months and years what the real effect of AI will be on consumers and businesses. Too many things have gone unchecked. If you have anything to add feel free to comment, and as always do your research and happy investing!
4,726 views
29 Comments
My Real Thoughts On AI And The Market 🤖❌ | Beginner Investors | Blossom Social
