I tried submitting this but landed here. I think I managed to cobble together a better title though: "US Federal Reserve Chair says that, unlike the dotcom boom, AI isn't a bubble"
> Powell’s framing echoes that view: The AI race, while frothy at times, is being financed mainly through corporate cash flow rather than speculative debt.
I think this is the most important line. Even if these companies are overvalued, I don't think there will be a nasty pop (this could change if banks start getting more involved, but so far it's been mainly company reserves and VC funding).
it's a "the use as big as assumed", "the use isn't worth the money invested in it" etc.
and so far that's the trend with AI, it has use, you can make money with it, but not _enough_
But there is just that much money you can get from people for the services OpenAI is currently usable/used for. Some (e.g. search, generating shopping lists, grammar correction) of which people expect to be cheap or even fully free and some (coding assistance) which involve other companies in the value chain.
Add circular money deals to that.
And it's very clearly a bubble.
But if you can drag out a bubble long enough you might be able to largely fill it up before it pops.
Through with how confidence in AI is moving + the general world economical situation I wouldn't bet on it.
Wouldn't clear overvaluation fit to term of bubble? And well if these companies are simply burning chunk of their profits and nothing turns out, wouldn't that affect their valuations? Like wouldn't any traditional company that just wasted good chunk of profits it made be valued at lower market price at somepoint?
And then you get to Nvidia. Which to me looks like clear case where price must correct if their profit drop due to demand dropping.
So even if there is no "pop", there will likely be a deflation and at these valuations even that will have impacts.
I think I get what Powell’s laying down, here, from an economics perspective. His data shows that a non-zero number of major players in the AI space are posting earnings, not just revenue, and that this is a sign of healthy economic activity. He’s also saying that while CAPEX investment today is coming primarily from corporate books (and not major banks), he’s also stressing that these investments have a long, uncertain tail - and that at present, between lofty promises from AI companies and executives eager to hoard capital, that the job market is seeing significant negative impacts that have zeroed out job growth while capital growth remains on a rocket ship to the stratosphere.
As someone who follows the man’s speeches and comments, I’ve always found that the real message is between the lines of what he says, especially for things he cannot say explicitly. So reading his comments here, my takeaways are:
* Zero job growth is a serious concern, especially as companies and business elites continue to demand a return to ZIRP
* Inflation also remains a concern in that same context, as it continues to skyrocket for essential goods
* Even if this AI investment is highly speculative and collapses, its “blowback” is broadly contained vis a vis the AI “sphere” being a handful of companies in circular investment schemes, not mass public buy-in like prior bubbles
* His immediate concern remains trying to figure out how to address rising inflation, stagnant wages, and negative/zero job growth in the face of a red hot securities market and continued trade uncertainties. The only levers left to pull will disproportionately hurt the working class even further, and he seems to continue suggesting that this isn’t an issue the Fed can solve absent Congressional intervention (which, let’s face it, ain’t happening)
That’s my takeaway from his comments this year, and it fits my own perspectives on the AI Bubble (in that yes it’s a bubble, but it’s a highly concentrated bubble that’s painting over broader harms and misleading public officials about the state of the economy). Being head of the Fed, he can’t come right out on either side of the fence and call AI a bubble or a real boost, hence why he’s couching comments deeply within economic terms alone.
What a bizarre statement if taken at face value as a description and not just as talking up the economy, even if the explicit premise is true; there were plenty of firms in the dotcom bubble that actually had real earnings and sustainable business models (they are, in some cases, still tech giants today); it was still a bubble; the contrast drawn requires false assumptions about what happened in the dotcom boom.
I would be shocked if the Fed Chairman intended his comments as advice regarding the relative valuation of the price of the SP500.
In 1999 people correctly understood that this thing called the internet was going to transform life like nothing before it had ever done. And they were correct. But that has very little to do about investing in stocks. Just because you have an insight into a fantastic technology doesn't mean the price being asked to purchase stock will earn a profit. And there is no way Powell would opine on whether now is a good time to buy, sell, or hold stocks.
My reading of Powell's comments is they were directed upon the stratospheric dollar amounts being spent creating AI data centers and what that means for the economy. There is just no way he is providing advice about the price of stocks.
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I think this is the most important line. Even if these companies are overvalued, I don't think there will be a nasty pop (this could change if banks start getting more involved, but so far it's been mainly company reserves and VC funding).
which doesn't mean it's not a bubble
a bubble is a over valuation of a industry sector
it isn't a "it has no use at all"
it's a "the use as big as assumed", "the use isn't worth the money invested in it" etc.
and so far that's the trend with AI, it has use, you can make money with it, but not _enough_
But there is just that much money you can get from people for the services OpenAI is currently usable/used for. Some (e.g. search, generating shopping lists, grammar correction) of which people expect to be cheap or even fully free and some (coding assistance) which involve other companies in the value chain.
Add circular money deals to that.
And it's very clearly a bubble.
But if you can drag out a bubble long enough you might be able to largely fill it up before it pops.
Through with how confidence in AI is moving + the general world economical situation I wouldn't bet on it.
And then you get to Nvidia. Which to me looks like clear case where price must correct if their profit drop due to demand dropping.
So even if there is no "pop", there will likely be a deflation and at these valuations even that will have impacts.
As someone who follows the man’s speeches and comments, I’ve always found that the real message is between the lines of what he says, especially for things he cannot say explicitly. So reading his comments here, my takeaways are:
* Zero job growth is a serious concern, especially as companies and business elites continue to demand a return to ZIRP
* Inflation also remains a concern in that same context, as it continues to skyrocket for essential goods
* Even if this AI investment is highly speculative and collapses, its “blowback” is broadly contained vis a vis the AI “sphere” being a handful of companies in circular investment schemes, not mass public buy-in like prior bubbles
* His immediate concern remains trying to figure out how to address rising inflation, stagnant wages, and negative/zero job growth in the face of a red hot securities market and continued trade uncertainties. The only levers left to pull will disproportionately hurt the working class even further, and he seems to continue suggesting that this isn’t an issue the Fed can solve absent Congressional intervention (which, let’s face it, ain’t happening)
That’s my takeaway from his comments this year, and it fits my own perspectives on the AI Bubble (in that yes it’s a bubble, but it’s a highly concentrated bubble that’s painting over broader harms and misleading public officials about the state of the economy). Being head of the Fed, he can’t come right out on either side of the fence and call AI a bubble or a real boost, hence why he’s couching comments deeply within economic terms alone.
Just my two cents, anyway.
In 1999 people correctly understood that this thing called the internet was going to transform life like nothing before it had ever done. And they were correct. But that has very little to do about investing in stocks. Just because you have an insight into a fantastic technology doesn't mean the price being asked to purchase stock will earn a profit. And there is no way Powell would opine on whether now is a good time to buy, sell, or hold stocks.
My reading of Powell's comments is they were directed upon the stratospheric dollar amounts being spent creating AI data centers and what that means for the economy. There is just no way he is providing advice about the price of stocks.