[iLoveOncall]

No, it's wrong.

Amazon is worth $2.81T right now and only represents 4.03% of the S&P500.

So a $1T share would represent less than 2% of the S&P500. This is significant for a single company, and 6% for 3 shit-tier companies (SpaceX, OpenAI and Anthropic) is even more significant, but we're far from "losing retirement if they go bust"-levels.

[smugglerFlynn]

I wish we would start paying proportional attention to business news, instead of treating AI (or any other "cutting edge") companies as economy-defining and giving these 50+% of the attention.

It is especially telling if we try to list out all the psychological biases at play:

  - Availability & salience bias - vivid, memorable things feel more important than they are
  - Narrative bias - humans tend to think in stories, and AI tells plenty
  - Recency and novelty bias — new things feel more consequential than established ones (this one already drives like 80% of all HN content btw)
  - Proportionality neglect - people are bad at intuitively grasping what percentages mean, even if they see the stats
  - Social proof and reflexivity - coverage signals importance, and drives more coverage
  - Status quo invisibility - things that work reliably become invisible (surprisingly, HN is really good in terms of working against this bias, I feel like at least 5% of all posts are some niche "inner daily workings" topics)
  - Speculation premium in attention - uncertainty generates more discussion than certainty
  - In-group signaling - cutting-edge things are status markers among influencers

[rtkwe]

On the other hand if you remove the gains from AI related companies the bull market basically disappears. [0] It makes up a small part of the market over all but if the market had been trading sideways for 3+ months people would be feeling quite differently about the economy.

[0] https://finance.yahoo.com/markets/article/ai-is-carrying-the...

[ben_w]

I've recently learned a new finance term, "float", and I want to check if this makes a difference to this discussion?

https://en.wikipedia.org/wiki/Public_float

I hear S&P 500 is weighted on float rather than on market cap, while Nasdaq 100 is based on market cap.

[eru]

Yes, that's mostly correct. Many indices are weighted by something like free float.

[outside1234]

Yes, and in this case, it means that SpaceX will only be approximately 0.1% of the SP500.

[HWR_14]

NASDAQ will be weighted by 3xfloat upto 100% when SpaceX goes public.

[petesergeant]

One of the places you could have learned this would be the article itself:

> most share indices weight firms in proportion to the value only of shares they have released for public trading (the “free float”). For SpaceX, this means just the $75bn or so of stock it intends to issue in June—so its initial weight in the S&P 500 will be around 0.1%. The NASDAQ 100 is an exception, and has changed its rules to weight companies at up to three times their free float, in an apparent effort to woo Mr Musk. Even so, SpaceX’s probable initial weight in this $40trn index will still only be around 0.5%.

[SlinkyOnStairs]

You're not modelling the contagion here. The problem is that while any single one isn't that big a share of the S&P 500, similar companies do make up a lot collectively. Excl some non-tech/AI firms:

NVIDIA Corp NVDA 8.02%

Apple Inc AAPL 6.53%

Microsoft Corp MSFT 4.84%

Amazon.com Inc AMZN 4.01%

Broadcom Inc AVGO 3.36%

Alphabet Inc GOOGL 3.32%

Alphabet Inc GOOG 3.09%

Meta Platforms Inc META 2.23%

Micron Technology Inc MU 1.71%

Advanced Micro Devices Inc AMD 1.19%

Oracle Corp ORCL 0.99%

That's 40% of the S&P 500.

And if anything happens to the AI bubble all of these go down together. While they won't all go to zero and cause a "-40%" overnight, Nvidia's rise is so meteoric that they will trigger a -8% and the rest's valuation has more than doubled since 2023. Even Apple, which isn't much of an "AI company", is still following the AI-tech hype.

If Nvidia eats shit, and the others go -50%, that translates to an overall ~-24% on the stock market.

Before any contagion outside the tech industry is considered. Look at the Dotcom Bubble and a -40% to -50% crash is quite plausible.

[lanstin]

Unlike OpenAI or SpaceX, a lot of those tech companies are raking in the money. meta, google, amazon, apple all have huge cash flows. They will be buffered by this money - in dot com time, the money wasn’t already there, just the eyeballs. And while Cisco, which like Nvidia sold actual things, took a long time to regain their stock price, they made money selling actual things all along. On the other hand, there is more debt now than in dot com. I wouldn’t be surprised by a fifty percent decline, but it will be different than dot com for sure.

[SlinkyOnStairs]

> And while Cisco, which like Nvidia sold actual things, took a long time to regain their stock price, they made money selling actual things all along.

This is the key comparison. It's not the "Pets dot com" side of the DotCom bubble, but the Telecom Bubble that followed. (All the AI startups that just repackage someone else's inference will go the way of Pets dot com, but their economic impact is minimal)

Certainly, Big Tech has massive cashflows. But those cashflows were priced into the 2023 valuations.

That is what makes the current valuations so ominous. Just a correction back to 2023 would be enormous. And as you note, a lot of these companies are taking on debt, dumping huge investments into AI. They're worse off than they were in 2023. Oracle may straight up go bankrupt.

[baggachipz]

The issue with nvidia is that they're "selling" most of their product to companies taking out debt to fund the purchases. The company explodes, nvidia's booked but not-yet-existing profits go poof. They're also giving most of these companies the money to buy their own products. Looks sweet on a balance sheet, doesn't represent reality in any sense.

> Oracle may straight up go bankrupt.

And nothing of value would be lost.

[irishcoffee]

I wish I could upvote this more. This is the point. Everything is so incestuous now that the problem isn't 2% here or 3% there, it'll be a catastrophe of epic proportions.

I do not want things to go kaboom, the CAPE index seems to indicate that what I want isn't relevant.

[bwfan123]

> Everything is so incestuous now that the problem isn't 2% here or 3% there, it'll be a catastrophe of epic proportions

Google and Amazon fund Anthropic which returns the favor with cloud purchases at these hyperscalers. So, google and amazon show increased earnings (via anthropic share markup) and increased cloud revenues via anthropic purchase. SpaceX didnt want to be left behind, so, it signed a deal with Anthropic.

Meanwhile capex at hyperscalers, VCs, PE etc is funding the party. Capex is not a concern to anybody as it doesnt appear on either revenues or earnings at the hyperscalers.

Downstream is partying from all the spending (server makers, chips, disk etc).

Whats not to like ! this is a perpetual money machine. Lets partay !

[djeastm]

That's if everyone were acting perfectly rationally, but a world in which those three companies go bankrupt would have everyone panic selling every equity possible like it's the endtimes.

[iLoveOncall]

Anthropic and OpenAI maybe, but I don't think anyone gives a flying fuck about SpaceX, and everyone knows its value is nowhere near a trillion.

[calmworm]

Unfortunately not everyone knows that. See some comments in this thread.

[andrepd]

They will drag the rest with it.

[saidnooneever]

thank you

[DanielHB]

If they go bust won't it likely trigger a massive market crash? Afterall index funds will be forced to sell other US stocks to buy them, bringing their values down. Non-passive investors will predict that and divest even more and so on...

And that is on top of the IPO companies losing value themselves, this seems likely to trigger a doom-loop until the market reaches a low enough value. This will likely trigger layoffs and companies reducing spending and investments further depressing the economy. Added inflation from oil prices and war.

This doesn't seem like one big balloon ready to burst, but more like a house suspended by hundreds of balloons and they are about to be ran over by an airplane.

[baggachipz]

Yeah, think dot-com crash all over again, but probably worse IMO. Problem is, there really isn't a safe place to hide when this all happens. Some are less unsafe, like funds which track dividend-yielding stocks, or gold I guess (but that's just a speculative value store like bitcoin).