AI Financial Bubble

Discussion of the potential AI investment bubble and its implications for the economy and tech sector.

Overview

Context: Wall Street Journal has been running articles "every day for the last 3 weeks" about the AI bubble with "different versions on why it is"

The Three Bubbles

Mike identified three distinct bubbles:

Cloud Computing
AI Chips
Cryptocurrency

The AOL Comparison

OpenAI = AOL of our day

Completely overinflated stock price
Sam Altman "doing exactly the right thing" using it to make deals
Deals "going to not look very good in a year or two"
Reminiscent of Time Warner being bought by AOL

The Economy IS AI

Key WSJ Article Claim: "The U.S. economy is now AI"

Data:

All U.S. economic growth for 12+ months from data center investment
"If you just take that out, the economy's been flat"
Trump policies making it worse

Growth Unsustainability

NVIDIA and others: "We're not going to maintain the kind of growth that we've seen from NVIDIA and some of these other companies"

Timeline: Bubble will deflate "either in a few weeks, or in a few years"

Personal Stakes: Mike's Situation

Investments:

Employee #130 at Cloudflare before IPO
Good chunk of retirement in Cloudflare stock
IBM stock
Other tech companies
"I tend to invest in what I know"

The Central Questions

Scope: Will it drag down:
- Just AI-related companies?
- Entire tech sector?
- Entire market?
Strategy: How many people thinking of "pulling out the profits from tech investments"?
Alternatives: "What in the hell do you put the proceeds into?"
Indicator: "Gold is up by a factor of 3" - others confused too

Call Poll Results

"Raise your hand if you think there's a bubble": Multiple hands

"Raise your hand if you're seriously thinking about changing investment strategy": Three and a half hands

Shorting Strategies

Michael Burry

Real-life market genius from The Big Short
Has fund set up to short the tech sector
Shorting NVIDIA and Palantir heavily
Historical context: 2016 New Yorker article predicted crisis
- Would have missed a decade of run-up
- Question: "When do you run out of money from shorting?"

Palantir CEO Response:

Alex Karp looked "panicked" when interviewed
"Oh, this is really bad. Oh, this is not fair, oh..."
"Deer in the headlights" - Doug Breitbart
Stock price went down 12%

Ben Hunt / Second Foundation Partners

Shorted real estate bubble in 2008
Runs asset management company
"Confessed longtime short"
Also founded Epsilon Theory and Panoptica.ai

Timing Challenge

Jerry's Historical Observation: "If you heeded the first warnings of, oh my god, we're in a bubble, you would miss the actual big run-up. And you would sell too early."

"If you miss the fall, because usually it's the first couple people who get off the merry-go-round who profit a lot, then you lose everything."

Conclusion: "Timing is everything in these things. And it's a little nutty."

Complexity: Multiple Bubbles

Jerry's Point: There could be "several different bubbles going on" with different dynamics:

Clear bubble in "frenzy to do AGI"
Other parts "not so bubbly"
"Really good, juicy, complex issue"

Pete's Bigger Picture

From chat (09:27:05):

"We've been in a technology 'bubble' since, say, the PC era. Sure, there have been ups and downs, but we're stuck on tech 'inflation' (both capability and economic).

AI feels like a kind of endgame; either:

The whole thing (technology, and modern living) crashes pretty hard, OR
AI enables massive growth in productivity and even things like social justice, perhaps with high costs around giving up sovereignty or agency (or heaven forbid) humanity.

The Investment Paradox: What do you 'invest' in financially when everything will crash, or everything turns wonderful?"

Alternative Suggestions (Semi-Joking)

Pork bellies
Rai stones (large stone currency from Island of Yap)
"Plastics, it's the future" - Pete Kaminski

Related Context

Financial Advisor Limitations

Mike: "I have a very good financial advisor, but... you know, he's got some suggestions, but I'm just curious how many of you are thinking of strategies"

Not a Financial Group

Jerry: "We're not a financially-oriented group, or that necessarily expert in this. There's probably different depths of expertise in the group."

Suggestion: "Might make a good topic for a call, like, is there a bubble? What is the bubble?"

Key Article Referenced

Seeking Alpha: "AI Completely Broke the Market (and Most Investors Haven't Noticed Yet)"

Link: https://seekingalpha.com/article/4837966-ai-completely-broke-the-market-and-most-investors-havent-noticed-yet
Shared by Mike Nelson

Related Concepts

Participants in Discussion

Mike Nelson (primary presenter)
Jerry Michalski (historical context)
Pete Kaminski (bigger picture)
Doug Breitbart (Burry reference)
Gil Friend (Hunt reference)

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