With Nvidia surpassing $2T in market cap, Wall Street is divided. Valuations are extended, & capex is booming. But, what happens when user hype fades & risks come to the forefront?
This is all disconcerting to me. I’m never comfortable when big tech starts hyping their latest innovations. This bit from your article was very disturbing:
Wall Street’s loudest bull, Fundstrat’s Tom Lee, went further to say that over time the world will replace “salaried workers with silicon.”
This comes at a time when many are seeking longer, more productive lives. Let’s face it, not everyone will benefit from the AI boom. There will be far more who see nothing from it or will be negatively impacted by it. What becomes of those people when our lives are radically altered?
I’ve lived long enough to see that many technological breakthroughs have brought as much grief as convenience for individuals. The effects of crime, exposure of personal info and discrimination that were also mentioned in the article are real and destroy lives. So far, we’ve not handled it well and failed to protect many of our most vulnerable.
So I choose to look beyond the potential profits to money seekers in favor of humanity in general. In a bubble or not, AI has no real value in my eyes until it’s proven that the potential damage can be successfully mitigated. It’s past time we draw a line and begin to consider restraining some of this madness.
Brilliant article. This bubble is not at all like the dotcom bubble purely because valuations were WAY ahead of earnings in that period. The opposite is mostly true this time.
Completely agree with most of your points here Amrita!
Thanks Oliver. I fully agree that unlike the dot-com, today, the valuations have earnings backing them up. What I am watching out for is when the first phase of the capex boom (training led) fades and the impact it will have on some of the semiconductor companies. Glad you enjoyed the post.
Exactly, With the markets at ATH, I'm waiting to see how many start ups get listed. None of the late-stage startups have moved to indicate any listing activity. Is there anything else apart from IPO's that youre looking at or just that?
Thanks Arni. Fully agree that there is no real AI IPO fever yet, which is quite unlike what we saw in the dot-com era. In fact, VC investment in AI startups is still below its 2021 levels, which can probably change this year.
Glad it helped, the 1990's-dot com bubble is the current baseline, with a lot of similar events related to capex spending that is currently place. Ultimately, no one really knows how long the party can continue.
My thoughts are that we are not in a bubble yet. The way bubbles work in financial markets is that retail investors have to be involved. We also need to consider AI in other parts of the world. Markets today are all connected.
Yep. I think so too. But we also need to consider that this is the post-pandemic era. Everything moves really fast. like Eric said below: could be years away or it could be a year away too.
As a long-term stock market trader, this is how I see it: human nature does not change, and it never will. What has changed is that technology has made it much easier for more market traders to access and invest in the markets, thus bringing in more market traders. This influx will likely contribute to making the bubble even bigger and potentially prolonging its duration.
Fully agree with you. What is different in this cycle is also the lack of fever thus far on AI IPO's, compared to the flurry of IPO's we saw in the dot-com boom.
I completely agree with you about AI IPOs. We need to see a surge in AI IPOs entering the market, followed by an influx of retail money into these companies, before we can say that a bubble is forming. The most recent bubble we experienced was during the Great Financial Crisis, and one of the best portrayals of this is in the movie 'The Big Short.' It offers a perfect example of a bubble. https://www.youtube.com/watch?v=iDcbUAh731s&rco=1
I love that movie and the clip you sent me. I have to admit the first time I watched the movie, I was a financial market novice, but it blew my mind. Also recently, Steve Eismann (who was portrayed in the movie, I believe) came to CNBC and he didn't seem concerned about any signs of distress in the markets at the moment.
"Irrational exuberance"...don't know how long the party continues. I am an AI optimist, but looking at the memeness of the NVDA chart this week is a little terrifying, I have to admit.
It is meme like, and 😬 but what crazy is NVDA is in the top 3 of the most valuable companies in the world. I don’t think they are wrong by valuing this company so high.
These other companies AMD, ARM, TSMC, AVGO, ect. amoung others are quickly moving up. I think we see a significant changing of the guard in next 5 years. The AI rally will fade in intensity but only increase in importance and value compared to other companies/sectors.
It always makes me nervous when there is an instictual response to explain why something is not a bubble. At the same time the idea of a bubble is trotted out way too much. If true that hording of H100 chips is a the new, new thing, one might well conclude its not 1995, but March 2000.
I agree Mr. Risk. What we saw last year was may be the first time I actually have ever witnessed a mad rush for semiconductor commodities like GPUs. Usually its paper towels or stuff like that👻👻.
But on a more serious note, I think there is usually a lag between the craze that starts when chips are hoarded to when demand suddenly falls off - at that time whichever company is holding all the excess chips they made thinking they would sell out will be the ones that might suffer --- worse if that company borrowed debt to make more chips than they could. Worse if there are 10, 20 or 100 companies like the first one that borrowed company to buy chips just to see demand suddenly fade.
So far business sentiment and cosnumer sentiment appears to be robust which shows this craze might continue in some shape or form.
“After all, history may not repeat, but it often rhymes.” - Amrita Roy
Fascinating piece, as always. Based on the available data - and your expert analysis - I tend to lean into the “The bubble is now,” camp, and that its burst will arrive shortly. To be fair, however, I’m not an 'optimist’ - pragmatic or otherwise - so grain-of-salt my opinions 😁
One final observation: I find Apple’s silence on AI to be… unsettling. Maybe I’m reading too much into it, but still… 🤔
I too find Apple's silence a little odd. On one hand, it could mean that it may have lost its innovation edge that it had once upon a time under Steve Jobs. On the other hand, Apple has always been known to be quite secretive, while its Vision PRO is definitely signal around how it is thinking of AI and consumer tech, it is not the "aha" moment of the iPhone just yet. I guess it's a wait and watch at the moment.
As for the bubble, the irrational exuberance can certainly go on as people inherently love to gamble. As for me, I am investing mostly in slow and steady (often boring) companies that are mostly not participating in the hype at the moment.
"Irrational exuberance" - ironically, a term coined by Fed Chair Alan Greenspan during the dot-com bubble. If that was deliberate on your part... well played ;-) And if NOT deliberate... then you are so tuned into the markets you even connect dots subconsciously LOL
Either way, I both agree and bow to your wisdom...
It was only at the beginning of this year that I first learnt that it was Alan Greenspan who had coined this term, which I now use ever so frequently. Thank you so much once again.
You are right, most of the valuation concern is concentrated amongst the tech sector at the moment, particularly amongst the enablers and beneficiaries of AI. The rest of the market on the other hand is still behaving.
"AI" has its place and I believe it's in space. The human being is far too fragile to survive the rigors of outer space. Create a race of androids equipped with the latest in "AI" intelligence and let them explore the cosmos.
If look at the Total US Stock Market Cap/US GDP (known as the Buffett indicator) in the last two bubbles, dotcom bubble of 2000 and real estate bubble of 2008, the stock market was trading 2 standard deviations above the trend. Now we are above 1.5...
Market is also overvalued in terms of price to fcf, we are at the top 22 percentile for this metric and of course S&P 500 is also trading at 27 PE which is way higher than the historical average of 21.
In short, we are not in the bubble territory yet but we are definitely approaching.
Though, I don't agree the reasoning of Apollo Academy.
Comparing top companies' valuation from 2000 and now doesn't make sense as the most of the top companies now are not big because they are big in their industries but because most of them are platform businesses and the platform business is naturally monopolistic. Meaning dominant company gets most of the profits while others usually feed on breadcrumbs. So, they are not expensive because we are in a bubble; they are expensive because the nature of platform business is monopolistic which allows them to expand margins which in turn leads to multiple expansion.
You brought on some fantastic points Oguz. Thanks for drawing the parallel between the market cap/GDP between dot-come and the current era. I too, have issues with how Apollo Global is benchmarking the valuations to the dot-com boom burst, like you have said that today's largest tech companies own their respective networks and all the value and surplus is accruing to them, with the economics around giant take rates that is allowing them to gain outsized profit margins and this mechanic will be hard to disrupt.
This is all disconcerting to me. I’m never comfortable when big tech starts hyping their latest innovations. This bit from your article was very disturbing:
Wall Street’s loudest bull, Fundstrat’s Tom Lee, went further to say that over time the world will replace “salaried workers with silicon.”
This comes at a time when many are seeking longer, more productive lives. Let’s face it, not everyone will benefit from the AI boom. There will be far more who see nothing from it or will be negatively impacted by it. What becomes of those people when our lives are radically altered?
I’ve lived long enough to see that many technological breakthroughs have brought as much grief as convenience for individuals. The effects of crime, exposure of personal info and discrimination that were also mentioned in the article are real and destroy lives. So far, we’ve not handled it well and failed to protect many of our most vulnerable.
So I choose to look beyond the potential profits to money seekers in favor of humanity in general. In a bubble or not, AI has no real value in my eyes until it’s proven that the potential damage can be successfully mitigated. It’s past time we draw a line and begin to consider restraining some of this madness.
Brilliant article. This bubble is not at all like the dotcom bubble purely because valuations were WAY ahead of earnings in that period. The opposite is mostly true this time.
Completely agree with most of your points here Amrita!
Thanks Oliver. I fully agree that unlike the dot-com, today, the valuations have earnings backing them up. What I am watching out for is when the first phase of the capex boom (training led) fades and the impact it will have on some of the semiconductor companies. Glad you enjoyed the post.
Amazing overview! Loved the chart of the dotcom period IPOs, that’s personally what I am tracking to assess “how bubble it is”.
No real AI IPO fever yet!
Exactly, With the markets at ATH, I'm waiting to see how many start ups get listed. None of the late-stage startups have moved to indicate any listing activity. Is there anything else apart from IPO's that youre looking at or just that?
That’s a simple effective indicator. As long as the market remains hot but backed by reasonable growth I am not worried.
Thanks Arni. Fully agree that there is no real AI IPO fever yet, which is quite unlike what we saw in the dot-com era. In fact, VC investment in AI startups is still below its 2021 levels, which can probably change this year.
The parallel with the dot-com bubble was something I've been curious about since Feb. Thank you so much for this informative article!
Glad it helped, the 1990's-dot com bubble is the current baseline, with a lot of similar events related to capex spending that is currently place. Ultimately, no one really knows how long the party can continue.
My thoughts are that we are not in a bubble yet. The way bubbles work in financial markets is that retail investors have to be involved. We also need to consider AI in other parts of the world. Markets today are all connected.
Yep. I think so too. But we also need to consider that this is the post-pandemic era. Everything moves really fast. like Eric said below: could be years away or it could be a year away too.
As a long-term stock market trader, this is how I see it: human nature does not change, and it never will. What has changed is that technology has made it much easier for more market traders to access and invest in the markets, thus bringing in more market traders. This influx will likely contribute to making the bubble even bigger and potentially prolonging its duration.
Fully agree with you. What is different in this cycle is also the lack of fever thus far on AI IPO's, compared to the flurry of IPO's we saw in the dot-com boom.
I completely agree with you about AI IPOs. We need to see a surge in AI IPOs entering the market, followed by an influx of retail money into these companies, before we can say that a bubble is forming. The most recent bubble we experienced was during the Great Financial Crisis, and one of the best portrayals of this is in the movie 'The Big Short.' It offers a perfect example of a bubble. https://www.youtube.com/watch?v=iDcbUAh731s&rco=1
I love that movie and the clip you sent me. I have to admit the first time I watched the movie, I was a financial market novice, but it blew my mind. Also recently, Steve Eismann (who was portrayed in the movie, I believe) came to CNBC and he didn't seem concerned about any signs of distress in the markets at the moment.
We could get there, but I'm you. Could be a year or years away.
"Irrational exuberance"...don't know how long the party continues. I am an AI optimist, but looking at the memeness of the NVDA chart this week is a little terrifying, I have to admit.
And some Greenspan nice word play!! 😜
I miss trying to guess monetary policy through his lunch choice lol
Must have been a wild time lol!!!
It is meme like, and 😬 but what crazy is NVDA is in the top 3 of the most valuable companies in the world. I don’t think they are wrong by valuing this company so high.
These other companies AMD, ARM, TSMC, AVGO, ect. amoung others are quickly moving up. I think we see a significant changing of the guard in next 5 years. The AI rally will fade in intensity but only increase in importance and value compared to other companies/sectors.
Nicely done, as always.
Thanks Greg, glad you enjoyed it.
Thank you for providing the charts and findings. I did a quick read and will go through them again in the morning.
Thanks Jean, let us know if you have any questions or feedback.
It always makes me nervous when there is an instictual response to explain why something is not a bubble. At the same time the idea of a bubble is trotted out way too much. If true that hording of H100 chips is a the new, new thing, one might well conclude its not 1995, but March 2000.
I agree Mr. Risk. What we saw last year was may be the first time I actually have ever witnessed a mad rush for semiconductor commodities like GPUs. Usually its paper towels or stuff like that👻👻.
But on a more serious note, I think there is usually a lag between the craze that starts when chips are hoarded to when demand suddenly falls off - at that time whichever company is holding all the excess chips they made thinking they would sell out will be the ones that might suffer --- worse if that company borrowed debt to make more chips than they could. Worse if there are 10, 20 or 100 companies like the first one that borrowed company to buy chips just to see demand suddenly fade.
So far business sentiment and cosnumer sentiment appears to be robust which shows this craze might continue in some shape or form.
We’re probably going to enter a trough of sorrow soon in AI, but like the dot.com bubble, AI is here to stay, just as the internet was
Yup! Nailed it!
Fully agree with you Matthew.
Quote of the week…
“After all, history may not repeat, but it often rhymes.” - Amrita Roy
Fascinating piece, as always. Based on the available data - and your expert analysis - I tend to lean into the “The bubble is now,” camp, and that its burst will arrive shortly. To be fair, however, I’m not an 'optimist’ - pragmatic or otherwise - so grain-of-salt my opinions 😁
One final observation: I find Apple’s silence on AI to be… unsettling. Maybe I’m reading too much into it, but still… 🤔
Great work as always, Amrita! 🫡
Thanks Stone, glad you enjoyed the post.
I too find Apple's silence a little odd. On one hand, it could mean that it may have lost its innovation edge that it had once upon a time under Steve Jobs. On the other hand, Apple has always been known to be quite secretive, while its Vision PRO is definitely signal around how it is thinking of AI and consumer tech, it is not the "aha" moment of the iPhone just yet. I guess it's a wait and watch at the moment.
As for the bubble, the irrational exuberance can certainly go on as people inherently love to gamble. As for me, I am investing mostly in slow and steady (often boring) companies that are mostly not participating in the hype at the moment.
"Irrational exuberance" - ironically, a term coined by Fed Chair Alan Greenspan during the dot-com bubble. If that was deliberate on your part... well played ;-) And if NOT deliberate... then you are so tuned into the markets you even connect dots subconsciously LOL
Either way, I both agree and bow to your wisdom...
It was only at the beginning of this year that I first learnt that it was Alan Greenspan who had coined this term, which I now use ever so frequently. Thank you so much once again.
The premise of this post is identical to mine that I just released on AI. That's very odd. Great read by the way.
Glad you enjoyed the post.
Hi Amrita,
thank you as always for your insights!
That's a note I think you might find pretty interesting.
https://substack.com/profile/85764394-gianni-berardi/note/c-51270340
You are right, most of the valuation concern is concentrated amongst the tech sector at the moment, particularly amongst the enablers and beneficiaries of AI. The rest of the market on the other hand is still behaving.
It’s also worth noting that, according to this measure, the bull market of 2021 was more inflated than today’s.
That was a great read Amrita. Thank you for sharing.
Thank you so much, glad you enjoyed it.
Thank you Amrita, your analysis is always based on the best information available! Thank you! ✨
Thanks Charlotte, always grateful to you for your kindness and support.
"AI" has its place and I believe it's in space. The human being is far too fragile to survive the rigors of outer space. Create a race of androids equipped with the latest in "AI" intelligence and let them explore the cosmos.
If look at the Total US Stock Market Cap/US GDP (known as the Buffett indicator) in the last two bubbles, dotcom bubble of 2000 and real estate bubble of 2008, the stock market was trading 2 standard deviations above the trend. Now we are above 1.5...
Market is also overvalued in terms of price to fcf, we are at the top 22 percentile for this metric and of course S&P 500 is also trading at 27 PE which is way higher than the historical average of 21.
In short, we are not in the bubble territory yet but we are definitely approaching.
Though, I don't agree the reasoning of Apollo Academy.
Comparing top companies' valuation from 2000 and now doesn't make sense as the most of the top companies now are not big because they are big in their industries but because most of them are platform businesses and the platform business is naturally monopolistic. Meaning dominant company gets most of the profits while others usually feed on breadcrumbs. So, they are not expensive because we are in a bubble; they are expensive because the nature of platform business is monopolistic which allows them to expand margins which in turn leads to multiple expansion.
You brought on some fantastic points Oguz. Thanks for drawing the parallel between the market cap/GDP between dot-come and the current era. I too, have issues with how Apollo Global is benchmarking the valuations to the dot-com boom burst, like you have said that today's largest tech companies own their respective networks and all the value and surplus is accruing to them, with the economics around giant take rates that is allowing them to gain outsized profit margins and this mechanic will be hard to disrupt.