For those around for the .com bust it does feel very similar. In both cases the tech is amazing and isn’t going away, but the business models of many/most companies “innovating” with the tech is simply unsustainable. A lot of “AI” currently looks like a dry forest waiting for lighting to strike and burn it to the ground. The latest round of PR puff from CEOs saying they’re doing layoffs because of AI (vs their poor performance or prior bad business decisions) is fueling the perception that the hype is a mile wide and a millimeter thick, just waiting for the moment when it all comes crashing down.
This is a longstanding predictable pattern in tech. Most of these “AI companies” will go bust or become a shell of their former self and sold off for parts. The tech will be commoditized and become pretty ubiquitous across the board but not a profit center in its own right.
With the amount of money being tossed around I am convinced this is going to be 10x worse than the dotcom bubble when it pops. And it will pop. You simply can't have pre-product companies valued at 10s of billions of dollars and expect a good outcome.
The LLM/AI tech has clear use cases and benefits. However, no, I do not need a shoehorned, dedicated AI in every single product and service I use. That is where is the bubble is in my opinion, everywhere the AI is built or applied in cases where it does not work or does not make sense.
I have no problem with the amount of money that is dumped into AI, but I'm annoyed by the false promises. People telling me that Claude Code has no problem implementing clearly defined little feature requests but when I let it tackle this one here https://github.com/JaneySprings/DotRush/issues/89 (add inlay hints for a C# VSCode extension) it kept on failing and never made it work. Even with me guiding it as good as I can. And I tried for a good 4 hours. So yeah, there's still way to go for AI. Right now, it's not as good as the amount of money dumped in would make you believe, but I'm willing to believe that this can change.
I do wonder if investors have a game-plan of what happens (to their investments, not society), based on future AI trajectories - where it becomes superintelligent, where it tapers off at the level where it's useful but still needs to be babied, or where it can genuinely replace some people, but it's clearly not superhuman.
In all these cases, it's very likely no AI shop is going to have a monopoly on the tech, and cartels are not very likely, considering China (and maybe Europe) is in the game as well.
In a gold rush, sell shovels, and the company's having a monopoly in shovels in Nvidia.
I find AI useful, I use it most days to write snippets of code or to rubber duck with. It hasn't changed my workflows that much, just replaced Stackoverflow with ChatGPT. Feels like the sweet spot for me, everything else is noise.
Good rule of thumb: When everybody talks about bubbles while rates are going down, it's a good time to invest. When everybody's talking about investing and rates are going up, it's a good time to drop out. Right now we are in the former timeframe. As long as cash remains cheap, there is no good reason from a financial market perspective for this to not go on. Is it sustainable indefinitely? No. But almost nothing in our current economy is. AI nowadays just generates easy clicks for opinion pieces like this looking at a single data point. That doesn't mean there is any reason to act on it or even just to read too much into it.
I think the term "bubble" is far too presumptuous. You can only know if something is a bubble with hindsight.
There have been examples where things look like a bubble to some market participants, but turn out to be more or less a good reflection of that thing's future value.
AI is uniquely hard to value too because there's so many exponentials which may or may not occur, with those exponentials both having the potential to make products exponentially more valuable or redundant.
There's also different parts of the AI stack and again it's really hard to see which part of the AI stack holds secure value, perhaps with the exception of the hardware providers.
Anyway, I suspect in a few years those calling AI a bubble will mostly be proven wrong, but that's just my sense of things.
Not even close. Dotcom bubble was massive. Mom and pops were leveraging into tech stocks. I don’t see anything like that today. Is your 75-yo aunt bragging about how she bought Nvidia options? People who lost everything in dotcom and lost it all again during the financial crisis have become PERMANENTLY risk-averse. These are a majority of retired boomers which makes them even more risk-averse because they’re now retired. Dotcom equivalent would be if S&P more than doubles from here.
This is why many of the companies are trying to get sold to big tech. "Windsurf" is an example here. They want to exit, get paid, pay off investors, and let big tech hold the bag.
Another example is "Devin" or whatever the parent company is. Recently acquired some unknown company and they are cooking their books for the next acquisition
I don’t think AI is overhyped—am I missing something? I remember being skeptical of Dropbox and SpaceX but LLMs seem genuinely revolutionary. Yeah, it’s not “AI” as we understand it from the movies. But it can write papers better than a college freshman. That’s amazing.
A lot of the comments here are talking about startups. But the chart in the article is the forward P/E of the top 10 companies in the S&P.
For reference, those 10 companies are: Nvidia, Microsoft, Apple, Amazon, Meta, Braodcom, Alphabet (Class A), Alphabet again (Class C), Tesla, Berkshire.
This isn't a pets.com situation.
These companies are ENORMOUS cash engines with incredibly well-proven moats operating in an extremely monopoly-friendly political climate. Nothing like this existed in the 90s. Microsoft, but anti-trust still had some teeth.
The author makes a comparison between these companies and the rest of corporate America, arguing (implicitly) that the forward P/E of these ten symbols is too high relative to the rest of the S&P 500 index.
So let's look at the flip side. Many of the other companies in the S&P are vulnerable to these exact players' moats and pricing power. It's a zero-sum game and the winner is clear, so of course the winner's P/E looks really high compared to the expected loser.
Every single one of them has an AWS bill. Every single one of them has a big Windows/Office install base. Every single one of them probably has a huge apple install base. Every single one of them needs to pay to play in the App Store.
And many of them are also in the unenviable position of being on the losing side of an unfair competition in their actual core business. Walmart/HD/Coca-Cola vs Amazon. IBM/Oracle vs AWS. Or other complicated market dynamics that pose only upside to the big guys and potential downside to the rest (Biotechs vs Amazon Pharmacy).
The remainders are competing margins away from one another, are vulnerable to disruption of mid-market non-S&P players (or similarly sized companies that just aren't on the public markets -- see the huge size of privacy capital relative to the 90s). Some also face significant tariff risk. Think banks, consumer goods.
What percent of the difference in P/Es between the best and rest is justifiable on the thesis that we are entering a multi-decade period of (1) tech feudalism and (2) unpredictable populist fits that wreck havoc on everyone except the tippy top of the echelon who can blow enough cash to control the narrative?
A large part of the ecosystem around it is certainly going to implode in a pets.com fashion. But the underlying tech seems valid to me so think a handful will come out of this stronger than before
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[ 2.8 ms ] story [ 40.0 ms ] threadThis is a longstanding predictable pattern in tech. Most of these “AI companies” will go bust or become a shell of their former self and sold off for parts. The tech will be commoditized and become pretty ubiquitous across the board but not a profit center in its own right.
If you're a CEO of a giant AI corp you're currently racing for superintelligence (meta-bubble).
The rest of us apes are flinging AI slop at each other until we've saturated each other in AI slop.
I don't really know what will happen, just offering my observation (ape noises)
In all these cases, it's very likely no AI shop is going to have a monopoly on the tech, and cartels are not very likely, considering China (and maybe Europe) is in the game as well.
In a gold rush, sell shovels, and the company's having a monopoly in shovels in Nvidia.
There have been examples where things look like a bubble to some market participants, but turn out to be more or less a good reflection of that thing's future value.
AI is uniquely hard to value too because there's so many exponentials which may or may not occur, with those exponentials both having the potential to make products exponentially more valuable or redundant.
There's also different parts of the AI stack and again it's really hard to see which part of the AI stack holds secure value, perhaps with the exception of the hardware providers.
Anyway, I suspect in a few years those calling AI a bubble will mostly be proven wrong, but that's just my sense of things.
Another example is "Devin" or whatever the parent company is. Recently acquired some unknown company and they are cooking their books for the next acquisition
For reference, those 10 companies are: Nvidia, Microsoft, Apple, Amazon, Meta, Braodcom, Alphabet (Class A), Alphabet again (Class C), Tesla, Berkshire.
This isn't a pets.com situation.
These companies are ENORMOUS cash engines with incredibly well-proven moats operating in an extremely monopoly-friendly political climate. Nothing like this existed in the 90s. Microsoft, but anti-trust still had some teeth.
The author makes a comparison between these companies and the rest of corporate America, arguing (implicitly) that the forward P/E of these ten symbols is too high relative to the rest of the S&P 500 index.
So let's look at the flip side. Many of the other companies in the S&P are vulnerable to these exact players' moats and pricing power. It's a zero-sum game and the winner is clear, so of course the winner's P/E looks really high compared to the expected loser.
Every single one of them has an AWS bill. Every single one of them has a big Windows/Office install base. Every single one of them probably has a huge apple install base. Every single one of them needs to pay to play in the App Store.
And many of them are also in the unenviable position of being on the losing side of an unfair competition in their actual core business. Walmart/HD/Coca-Cola vs Amazon. IBM/Oracle vs AWS. Or other complicated market dynamics that pose only upside to the big guys and potential downside to the rest (Biotechs vs Amazon Pharmacy).
The remainders are competing margins away from one another, are vulnerable to disruption of mid-market non-S&P players (or similarly sized companies that just aren't on the public markets -- see the huge size of privacy capital relative to the 90s). Some also face significant tariff risk. Think banks, consumer goods.
What percent of the difference in P/Es between the best and rest is justifiable on the thesis that we are entering a multi-decade period of (1) tech feudalism and (2) unpredictable populist fits that wreck havoc on everyone except the tippy top of the echelon who can blow enough cash to control the narrative?
[1]https://commons.wikimedia.org/wiki/File:Gartner_Hype_Cycle.s...
Today is it just a matter of cash and DC capacity?