AI Bubble?
I'm a finance/CS student and don't know much that much about stock/company valuations, but I've always been a skeptic, and am wondering whether people think we are in an AI Bubble. There is a glaring overall lack of use for AI directly making profit taking into account its upkeep costs and its cost of infrastructure/development. I understand that the implications for AI for cutting operations costs and eliminating inefficiencies are huge, but it just seems similar to the .com bubble of companies being way overvalued because the idea of the internet was good despite a shitty bottom line. People are investing in a future that is completely uncertain and don't understand how AI even works. I mean Astera Labs IPOed at $32 a share and ended the day at $62 with a $10 billion market cap (probably because its road show was endorsed by Jensen Huang), when it is not going to be profitable for years to come down the line, after AI infrastructure has been established. NVIDIA is doing incredibly well in earnings due huge investment of AI infrastructure, but their performance imo is just a metric for the insane amount of money thrown at developing AI. Does the general public even know how AI works? Do they know the problems of AI and how it is completely dependent on the data its fed to provide proper advisory? HFs that use AI for investing in the public markets are doing shitty, and people just say wait wait it just needs time to develop! When its super costly to keep up investing in this technology, I mean fucking Sam Altman has asked for $7 trillion dollars for his new project lmao. Every day, you see shit on social media about AI will destroy the world! and AI this and that. When in reality, AGI is far from ever being created... and tons of Fortune 100 companies still use outdated tech from years ago for operations. I definitely see how AI will be advantageous for cutting costs and improving efficiency in the future, but the news is going overboard with using AI as a buzzword and is way too quick to say how it will destroy the world! or create mass unemployment! or be smarter than humans! And if you are a business that is not invested in AI, just like everyone else, there is FOMO and you will not looked at as favorably for financing or funding for your business.
The skepticism you're expressing about the current state and valuation of AI in the market is not unfounded and echoes sentiments shared in various discussions on Wall Street Oasis. Here's a breakdown of key points that align with your concerns and observations:
Dot-com Bubble Parallel: The comparison to the dot-com bubble is a common theme, where the excitement over the potential of the internet led to inflated valuations for companies with minimal to no profit. Similarly, the AI sector is seeing significant investments and valuations based on future potential rather than current profitability.
Understanding of AI: There's a general lack of understanding among the public about how AI works, its limitations, and its dependency on quality data. This gap in knowledge can contribute to unrealistic expectations about AI's capabilities and its impact on the market.
Investment vs. Profitability: Companies like Astera Labs and NVIDIA are highlighted for their roles in the AI infrastructure, with NVIDIA's success often seen as indicative of the broader investment in AI development. However, the profitability of these investments, especially in the short term, remains a question.
AI in Finance: The performance of hedge funds and other financial institutions that rely on AI for market investments has been mixed, suggesting that AI's effectiveness in this domain is still evolving. The high costs associated with developing and maintaining AI technologies pose additional challenges.
Public Perception and Fear: The narrative around AI's potential to "destroy the world" or lead to mass unemployment is prevalent in media and social discussions. This sensationalism can distort the public's understanding of AI's current capabilities and future prospects.
Fear of Missing Out (FOMO): Companies are feeling pressured to invest in AI to stay competitive, driven by a fear of missing out on the next big technological advancement. This can lead to rushed or ill-considered investments in AI technologies.
Reality Check: Despite the hype, many Fortune 100 companies and other organizations continue to rely on older technologies for their operations. The journey towards integrating AI into core business processes is ongoing and not as rapid as some narratives suggest.
Your skepticism and the points you've raised are valuable for fostering a more grounded and critical discussion about the role of AI in business and society. It's important to balance optimism about AI's potential with a realistic assessment of its current state, challenges, and the timeline for achieving significant breakthroughs.
Sources: Stop AI Takeover in 6 Months or Less | The Daily Peel | 3/31/23, Will robots replace your consulting or financial career?, https://www.wallstreetoasis.com/forum/investing/solving-a-crazy-problem-the-daily-peel-52223?customgpt=1, For Reál | The Daily Peel | 1/23/23, Technological advancements in IB
Maybe. Who knows? The thing is: shorting is a motherfucking clusterfuck of an operation, let alone being a very hyped tech. The market can stay irrational for longer than you can be against it.
We will all know the truth once earnings miss or lighter beats occur. TMT is essentially all about earnings potential, not valuations per se cause these firms can be differentiated as fuck.
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