> * Valuation of the sp500, the hyperscalers and Nvidia is (mostly) reasonable based on earnings
That is a hell of a statement to make (their earnings are mostly negative, after all, except nvidia). Would require exceptional evidence, which doesn't seem to be there.
> * Build out of infrastructure is demand-driven, hyperscalers are not building just for future demand that would not materialize
> * OpenAI, anthropic & co can be overvalued but that does not mean there's a systemic bubble
OK? It could also mean there is.
> I think this underestimates contagion effects and the fact that demand appears to be subsidized and may disappear quickly, but it's just MHO.
Even with subsidized demand Microsoft still ended up cancelling over a gigawatt(!) of planned datacenters already back in 2024. But yeah, their arguments are missing a lot.
I think the earnings are suspect and exaggerated. Hardware manufacturers are making real money now, but there is a big question if any of these AI companies can deliver profitability to match their current valuation let alone future valuations when they go public.
Hyperscalers are in big trouble if the build out suddenly stalls. Even Nvidia and Micron are going to see their value significantly trimmed if it looks like growth is stalling. With such concentration at the top of the S&P among tech companies and with SpaceX, Anthropic, and Open AI, three companies that probably burn a combined 50+ billion a year. The whole stock market will be a tinderbox.
The whole thing is so private capital can get their exit. Default rates of private capital are already at 6%. Banks are exposed so they are on board with the fraud.
> Hyperscalers are in big trouble if the build out suddenly stalls.
How would you define stalled? Hardly anything has been built in the last 2 years (and most of those juicy new GPUs must be sitting in a warehouse somewhere waiting to be installed, together with all of our RAM and HDDs).
But the stock market is not priced for what is happening. It is priced for what investors think will happen. And investors think companies are going to make a lot of profit in the next 3-5 years from AI. If investors lose confidence it will happen those stocks could see a 20 - 40 percent pull back. The companies will obviously be fine, but the stock will take a beating.
* Valuation of the sp500, the hyperscalers and Nvidia is (mostly) reasonable based on earnings
Based on earnings that mainly include all the circular tricks to generate business with each other.
How much is really left once you remove all of those?
You mean "Listen to [someone who started on Wall Street at Lehman Brothers, joined PayPal in its earliest days and worked alongside Peter Thiel and Elon Musk, and eventually became a venture capitalist in Silicon Valley] argue why AI probably isn't a bubble".
Funny how this different framing of the exact same person provides a completely opposite expectation of their incentives behind commenting on whether AI valuations are a bubble.
His experience at PayPal during the dot-com period gives him direct knowledge of how speculation can lead to major losses. This background encourages careful analysis of current conditions rather than automatic acceptance that all is well.
A point frequently overlooked is that professionals in his position have strong personal reasons to be accurate. Incorrectly concluding there is no risk can damage their investments and reputation more severely than acknowledging potential problems. His assessment rests on specific differences from earlier periods, such as major companies generating profits and consistent demand for critical hardware.
We don't let bubbles pop anymore. We print money and borrow from the future so that no one loses money on their homes and retirement accounts. The GFC changed the rules.
It looks less like capitalism and more like socialism for the rich, marketed as free markets.
Print money. Push most of it into cheap credit for giant corporations and asset owners. Let a little trickle into the real economy so ordinary people feel temporary relief. Then let inflation quietly do the dirty work.
The public pays through higher prices, weaker savings, and future debt.
The powerful collect the upside.
That is the game: privatize the profits, socialize the losses, and call it capitalism.
And all of this is legal under the disguise of "protecting the economy for regular folks", and they can keep doing it repeatedly.
It worked. The only people upset about it are young people who don't vote. If young people don't want a continual wealth transfer from them to the old, they need to start voting. That's been the case since 2008, and here we are a generation later.
People under 40 have much lower voter turnout than people over 40. 75% of 65+ year olds vote. Less than 50% of 18-25 year olds vote. I wasn't referring to children.
Old people will be the majority for the foreseeable future, though. To be honest, the only strategy that I currently see for young people is waiting and growing old, unfortunately..
Logically, it seems insane that people who live on other people's taxes have the right to vote. Officials, public sector employees, and anyone else who receives money from the government rather than contributes to it shouldn't vote.
It's possible that the gerrymandering will come back to bite them. It doesn't give them more votes, it just spreads them thinner over more seats. Which means if the blue wave is larger than expected a lot of their "safe" seats will suddenly be blue instead.
One thing I have come to realize, is that worrying about bubbles will keep you poor.
If everyone is in the bubble and it pops, everyone is in the same boat, so you’re not really going to be poorer than your peers by comparison.
If it’s not a bubble and you are wrong, you will fall way behind everyone else and just watch people get richer and richer doing the exact same thing you should have done.
Also, just because something is a bubble doesn’t mean it has to end in a devastating pop. Sometimes bubbles expand and then just get diffused. The exponential rise stops and prices plateau, but it just becomes a new normal and things stagnate for a while before resuming normal upward growth.
Ask Warren Buffet how concerned he was of "missing" on bubbles... He got richer than pretty much everybody else by just avoiding bubbles and then buying assets at fire sale prices when they inevitably popped.
Chamath says Warren Buffett outperformed the $SPX by 2 times pre-2000’s because he used "insider info".
Berkshire Hathaway completely exited its investment in Paytm (One97 Communications) in November 2023. This divestment occurred just two months prior to the Reserve Bank of India (RBI) initiating its strict regulatory and KYC-related crackdowns on Paytm Payments Bank in early 2024.
No, Warren Buffet became so rich because he was making deals to pick up stock at favorable prices the public didn’t have access to. You will not be Warren Buffet just by buying after stocks crash.
> If everyone is in the bubble and it pops, everyone is in the same boat, so you’re not really going to be poorer than your peers by comparison.
> If it’s not a bubble and you are wrong, you will fall way behind everyone else and just watch people get richer and richer doing the exact same thing you should have done.
I don't get? First scenario, you get richer vs. the average and in the second you gt poorer. So in total you average out? I don't see how not participating makes you poorer in average.
> Sometimes bubbles expand and then just get diffused.
That's not what a bubble is. A financial bubble is defined by the "burst" at the end.
Normal people generally won't be able to beat professionals in the "market timing game". So when Joe Sixpack decides to sell off his index funds with intent to buy back in at a lower price, he's usually making a mistake. Staying invested in the market is a better choice for most investors because being in cash is about -2%/year EV whereas being in stocks is about +6%/year EV.
Irrational exuberance rarely transitions to a rational drawn down. The minute the first selfish-actor flood-liquidates, everyone else will too. That's now runs work.
In my opinion the amount of money poured into these companies is the definition of irrational exuberance. And even if you want to call it dread, once they start to deflate people will panic and flee.
Hmm. With respect, I disagree. When the term was first coined, the broader context was "Main St" (ie, retail) investors acting with apparently excessive optimism. Whereas the unfathomable sums being poured into AI by "Wall St" arguably stem from profound but simple greed, a scheme in which the uber-rich are forcing AI and the concomitant bubble risk down the throats of the general public. "Exuberance" has a significantly positive connotation, which in this case I find completely absent.
That's not the problem, the problem is when they take it out of these companies, where it goes after that is irrelevant. Once the exodus starts prices will plummet and lots of people will lose a lot of value.
> "Gold gets dug out of the ground in Africa, or someplace. Then we melt it down, dig another hole, bury it again and pay people to stand around guarding it. It has no utility. Anyone watching from Mars would be scratching their head."
While this is factual, the world (and humans) haven't functioned this way since ... ever? It doesn't matter what you think logic is, if the people who are providing the services (teacher, worker, doctor, etc..) are illogical and you need these services from these people.
Because traditionally the pop is delayed while those who realized most of the gains attempt to offload the risk to other parties. Whether this works or not at some point it becomes an inevitable and self reenforcing feedback loop.
Just investing less in risky things on the run up means you personally perform worse so even in known bubbles you don't see reasonable slow downs instead of disastrous pops.
> traditionally the pop is delayed while those who realized most of the gains attempt to offload the risk to other parties
What? Source? Plenty of investment bubbles pop before the bag is passed.
This thread involves a lot of people looking at something they don't like and presuming karmic forces will give them what they deserve. There is no reason these companies, even if massively overvalued, have to "pop."
That's fundamentally different from e.g. the financial crisis, or the 2023 bank collapses, or even the dot-com bubble. Those did not have the ability to self correct. There was no slow deflation other than through a bailout.
I'm genuinely curious why you say this is different from the dot-com bubble?
As I see it, this is the exact same situation - wildly overvalued companies based on investor exuberance, the underlying business is not capable of supporting this kind of valuation. IPO tends to be the crunch point at which this overvaluation is exposed. Once exposed, the valuation correction spreads to other similar businesses quickly and the bubble pops.
What's the self-correction ability that AI companies have?
I said attempt to offload see mortgage backed securities for one such attempt.
The point is that nobody wants to be the first out of a hot market nor the last so that bubbles everyone knows are bubbles first hang on despite it being broadly believed to be so and then crash as people head for the exits.
Broadly people are taking on debt to realize profits that may not exist. Retrospectively widely acknowledged bubbles like every crash in the last century all popped im not aware of any big enough to cause a recession that petered out slowly. Since we don't need to look up 100 years of crashes together can you name some similarly large issues that were resolved slowly over time?
Once the liquidity is transferred, that's it? There is nothing there (datacenter in space, that dude is really smoking some serious stuff), so the money will be spent/transferred and then there is no revenue/new sources of money.
It's the same scenario of a ponzi scheme. Everything looks fresh and fine until everyone realizes there is nothing in there.
Not related - many robber barons went bankrupt in the severe economic crashes of the time, such as the Panics of 1873 and 1893. The Gilded Age continued despite bubbles popping.
Is there any definition of bubble that doesn't involve popping? That's literally the metaphor.
> We have no fundamental reason current valuations have to collapse suddenly.
I would agree, but i think that is just saying that the current situation is potentially not a bubble. Which may be true. We will only find out after the fact.
https://api.substack.com/feed/podcast/260347/s/233172.rss
https://podcasts.apple.com/us/podcast/conversations-with-col...
https://open.spotify.com/show/0Cj2lIpGxkrw1RFVIPTa6a?si=f41c...