tech
I was there for the dot-com burst. Here's how the AI bubble will pop.
Stock market booms and busts have two big things in common. Those signals point to a coming burst of the AI-fueled bubble.
TL;DR
- The AI spending boom is likely both a rational investment and a speculative bubble, mirroring past technological advancements.
- Past booms, like the internet and the lead-up to the 2008 financial crisis, shared key elements of 'Growth' (exciting innovation/demand) and 'Leverage' (debt/credit).
- AI companies are experiencing unprecedented revenue growth, with Anthropic reportedly reaching $65 billion in annualized revenue.
- Significant leverage is evident through massive investments, future spending commitments (e.g., Alphabet's $500 billion in off-balance sheet commitments), and vendor financing deals (e.g., Nvidia's agreements).
- The AI boom is expected to end with a bust when supply meets demand and financing leverage reaches its limit, similar to previous tech cycles.
- Investors should acknowledge uncertainty and invest cautiously, not betting more than they can afford to lose.