- A drop in nominal values on the same scale as the dotcom bust would wipe out $16T, or 8% of American household wealth. Foreign investors would lose $7T.
I'm hopeful that the AI bubble popping would bring back money flowing to other industries. If you're not an AI company right now it takes a lot to get investor cash flowing in.
It would be like SVB all over again. Small governemnt, anti bailout, pull yourselves up by your bootstraps tech CEOs on TV crying and begging for someone to cover their losses.
Are there any tools to take your existing porfolio and play out scenarios like this? Eg positions in 100+ stocks aggregated from 401k, Roth, 529, etc and see best guesses as to how I'm exposed?
I've never felt right about the framing of "destroying wealth" when stock prices go to some new number. If anything, the word "reflecting" seems more applicable?
I'm just waiting for the next massive knee jerk reaction in the stock market to start seriously investing again. AI is not going anywhere even if there is a bubble but people are going to make stupid narratives on it being over for Nvidia and tech.
In the 1990s and early 2000s, many of the companies leading the stock rally were not making much money, if any. This led to very high P/E ratios for some companies because share prices kept going higher, even when earnings were lagging well behind.
While Nvidia’s stock price has risen roughly 1,000 percent over the past three years, from $17 to $180, its earnings — the actual money it is making — have increased even faster. This means the stock is arguably cheaper today than it was three years ago, said Stacy Rasgon, a stock analyst at AB Bernstein.
This hurts the 'middle class' the most - as they have their savings locked up in growth stocks like AI.
Costs to the elderly would be socialized (we'd pay for medicare for more people); the youngest don't own stocks.
But you can imagine seeing knock on effects in housing prices, and massive increases in credit defaults as people who bought things thinking their portfolio was worth X, all of a sudden can't afford them when their portfolio is worth .5x
It's going to be bad when it happens - think DotCom crash. But if then crypto and other asset classes crash on top of that, you could have a real crisis.
Some of this analysis seems a bit lazy for the Economist.
Apple is in the "AI-related companies in the SP500" group? Microsoft too? Tesla too? Amazon too? But... if these companies' AI efforts fail, 95%+ of their revenues would be unaffected. So big stretch to paint them with that brush.
Nvidia, OK that one is obvious. Meta, Alphabet, OK.
But MOST of the companies listed in that chart are only "AI companies" in the sense that EVERY tech company building peripheral AI into their products is an AI company.
Case in point: if Apple stock goes 'on sale' as part of an AI-bubble sell-off, are you really deciding whether or not to buy based on their AI-ness?
Tesla is currently sitting near a $1.5T valuation with $1.47 earnings per share based entirely on AI vaporware. The adjustment to reality cannot come soon enough.
I think the real issue comes down to how these companies are being valued. As the article points out, "the top 20 firms account for 52%, with the same number deeply invested in AI." This concentration makes the market more vulnerable to any major setback in AI's growth. But the question remains: Are these valuations justified?
As I mentioned in earlier writing [1][2], many AI stocks are priced assuming the tech will deliver far more immediate and consistent returns than history suggests. These speculative assumptions are similar to the dotcom era, where companies like Yahoo and Pets.com were valued based on hype/expectation rather than fundamentals. If AI doesn't live up to the hype, the consequences could be even worse today imo, given how much more of American wealth is tied up in stocks.
As long as potential feels bigger than reality, investors keep pouring in.
Case in point: The dot-com crash came only after the web matured and reality finally hit the limits of its potential.
By that logic, an AI crash would likely come only once AGI arrives and the true boundaries of its impact become visible. Or, the progress towards AGI seems to stall.
Stock market crash? I believe less and less a 1929 style crash is possible. Tesla, Uber, hell, look at GameStop still... The market is rigged. The US and the upper class needs numbers go up, the numbers will go up.
The only way an adjustment to such stock prices would come is if US power and dollar vanes. There is a chance now this will happen, but I guess it will still take a long time.
That doesn't seem plausible to me, though not because I don't think the upper class would be above such behaviour. If investors try to prop up the price of a company, they'll end up buying more over-priced shares and potentially losing far more money in the long-term, so it's probably only worthwhile if they believe that it's just a short-term blip. Also, the investors that don't believe that it's a sensible long-term bet will be offloading their shares to the people who are willing to pay top price for them, so someone is going to end up holding a lot of expensive stock that's not performing.
I find the relationship of the general public with company ownership fascinating.
1) Can just pick and choose buying parts of the best, most well functioning companies without having to figure out anything or do anything, what a life.
2) Kinda hate on people who run those companies
3) Also kinda hate on big companies in general
4) Owning stocks is somewhat cool though. Unless it's not, then it's destruction of wealth.
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[ 3.3 ms ] story [ 58.5 ms ] thread- A drop in nominal values on the same scale as the dotcom bust would wipe out $16T, or 8% of American household wealth. Foreign investors would lose $7T.
Also what a shit headline. There’s no wealth destroyed, it’s all just numbers go up and down. But until you sell you haven’t lost any money, have you?
Excerpts:
In the 1990s and early 2000s, many of the companies leading the stock rally were not making much money, if any. This led to very high P/E ratios for some companies because share prices kept going higher, even when earnings were lagging well behind.
While Nvidia’s stock price has risen roughly 1,000 percent over the past three years, from $17 to $180, its earnings — the actual money it is making — have increased even faster. This means the stock is arguably cheaper today than it was three years ago, said Stacy Rasgon, a stock analyst at AB Bernstein.
Costs to the elderly would be socialized (we'd pay for medicare for more people); the youngest don't own stocks.
But you can imagine seeing knock on effects in housing prices, and massive increases in credit defaults as people who bought things thinking their portfolio was worth X, all of a sudden can't afford them when their portfolio is worth .5x
It's going to be bad when it happens - think DotCom crash. But if then crypto and other asset classes crash on top of that, you could have a real crisis.
We will leave the bill for some teacher pension fund in Minnesota.
Apple is in the "AI-related companies in the SP500" group? Microsoft too? Tesla too? Amazon too? But... if these companies' AI efforts fail, 95%+ of their revenues would be unaffected. So big stretch to paint them with that brush.
Nvidia, OK that one is obvious. Meta, Alphabet, OK.
But MOST of the companies listed in that chart are only "AI companies" in the sense that EVERY tech company building peripheral AI into their products is an AI company.
Case in point: if Apple stock goes 'on sale' as part of an AI-bubble sell-off, are you really deciding whether or not to buy based on their AI-ness?
Edit: Just read a related WSJ [3] article.
[1] https://pdub.click/2511242 [2] https://pdub.click/251210e [3] https://www.wsj.com/personal-finance/the-everyday-investors-...
Case in point: The dot-com crash came only after the web matured and reality finally hit the limits of its potential.
By that logic, an AI crash would likely come only once AGI arrives and the true boundaries of its impact become visible. Or, the progress towards AGI seems to stall.
The only way an adjustment to such stock prices would come is if US power and dollar vanes. There is a chance now this will happen, but I guess it will still take a long time.
1) Can just pick and choose buying parts of the best, most well functioning companies without having to figure out anything or do anything, what a life.
2) Kinda hate on people who run those companies
3) Also kinda hate on big companies in general
4) Owning stocks is somewhat cool though. Unless it's not, then it's destruction of wealth.