Are we in an AI Bubble?
My perspective on "Al" is that it's essentially just an advanced algorithm. Large Language Models like Chat GPT, for example, predict responses to questions based on patterns in the data they've been trained on. While they're remarkably good at it, this doesn't change the fact that these models lack true intelligence. They don't actually understand the content of our conversations or the meaning of the data fed into their systems.
I've also noticed a surge of dubious Al products hitting the market like a dog bowl that supposedly uses Al, I mean come on now? This reminds me of the Dotcom bubble, where companies increasingly slapped dotcom on their name to inflate stock prices. l've even come across ads featuring humanoid robots using computers alongside humans, touted as the future. But why would a robot need to use a keyboard and mouse? It's like when cars were first developed no one tried to create a mechanical horse-they built engines directly connected to wheels because it was vastly more efficient.
The SEC has also been cracking down on companies that are hyping up their use of Al without actually delivering on it—a practice they're calling "Al washing." Basically, some firms are slapping "Al" on their products or services to attract investors, even though they aren't really using Al as they claim. They actually fined a couple of investment advisers for doing just that.
I honestly believe the market is vastly overestimating Al's impact (in the short term at least). This technology has been around for decades, just refined and repurposed for wider applications. Renaissance Technologies has been leveraging Al models since the 1970s, and codebreakers during the Cold War were using similar concepts long before that.
Furthermore, the Mag 7 are pouring billions into Al, but there's little clarity on how they plan to monetize it and eventually get an ROI. When e-commerce first emerged, it was evident that it would reduce costs. In contrast, Al is attracting massive investment without a clear, practical use case.
Given the current valuations and the hype surrounding Al, I'm wondering if we're in a bubble. If this bubble bursts, what could the consequences be for the broader equity markets and macroeconomic conditions? I'd be interested in hearing thoughts from those with more experience in this area.
Based on the most helpful WSO content, here are some insights regarding the potential AI bubble and its broader implications:
Similarities to Past Bubbles
Market Overestimation and Historical Context
Investment and ROI Concerns
Broader Market and Macroeconomic Implications
Expert Opinions
Conclusion
For more detailed discussions and expert opinions, you can refer to the following threads on Wall Street Oasis: - https://www.wallstreetoasis.com/forum/investment-banking/a-decade-into-…</a">Bubble of the Century? - https://www.wallstreetoasis.com/forum/investment-banking/a-decade-into-…</a">A Decade Into IB: Teetering on the Edge of Cataclysm?
These threads provide a comprehensive view of the current market sentiment and potential risks associated with the AI hype.
Sources: , A Decade Into IB: Teetering on the Edge of Cataclysm?, , A Contrarian View - Raging Bull, Real Estate Industry in a bubble?
That shouldn't be a "perspective", that is what AI is. A model is an algorithm; it's a description of a system.
Perhaps look into the problem of a model "overfitting".
Your thesis reminds me of how people used to talk about how grossly overvalued the market was and that we were due a correction.
In a very simplistic sense - you can either bet on AI or not bet on AI. Trajectory is obviously for AI to continue improving (and sounds like you’re skeptical of that). But what are you gonna do? Short AI until bubble bursts? You’ll get blown on the way up. Or you could do nothing and just not invest in it. But AI is such a big driver of the overall market that anything else you invest in will probably underperform the index. So you either ride it up and one day it pops. Or you do nothing and feel sad if it moons and you’re stuck investing in XOM that’s only doing 10% on the year.
> You’ll get blown on the way up.
where do I sign
I believe this is really a more consensus view atm
A lot of debates and noise has popped up about AI sustainability and spending effectiveness
Aggregate HF positioning in tech/mag 7 hasn't increased since 2023
Where do we see the market going after Nvidia earnings release tomorrow?
The only companies who have been able to truly monetize are GPU providers (Nvidia) and Compute/Model providers (OpenAI/microsoft) - mostly because of the demand of every corporation trying to rush into having an AI narrative. We have not yet seen true sustainable monetization at the application layer - which is where the dog fight is happening in real time. Yes I believe that layer is very much a bubble. If you subscribe to the red queen theory, those competing at the hardware/infrastructure layer are going to always be the true winners - because every company will need to add AI something to their portfolio in order to stay competitive, I would not short NVIDIA/MSFT and the like just yet. There’s still a lot of work to be done to get most employees and consumers (who are seriously untapped imo) to truly adopt AI applications. I think right now most companies competing at the application layer are going after your Pro-Sumer persona to infiltrate the enterprise that way (get individual champions then have the company buy the whole team a plan) or using this pro-sumer as a way into the broader consumer market. Like with most new tech, your average person does not give a single fuck about AI, and i would guess most normal people feel incredibly threatened by AI. I think we need a few more months/years to really fix the UI/UX experience for broad adoption…just like mobile phones had to evolve a few times to become the inseparable part of our lives they are today. Just my 2c
I think so, but predicting when the bubble will pop feels pointless so may as well ride the AI wave till then. I also see many ppl comparing it to the dot com bubble, which is true in a sense, but also feels different in the sense that many of the AI leaders are well established companies (Msft, Meta, google, etc), whose business model does not rely solely on AI. Then you also have a company like NVIDIA that is a mature business bringing in real profits, rather than some theoretical AI product that has some fantasy land valuation bc of its potential.
So, if (when) the AI bubble pops, the big dawgs mentioned above will still be okay long term, and I think the person who invests in AI and stays invested through a correction will be better off than the person who sat on the sidelines.
What coverage universe does this AI bubble even harbor though. Like yeah nvidia, but all of the generative AI big players still have massive proven revenue streams (Google search Meta social media lol) that allow them to seek opportunities in this space. Very different from the previous bubbles where you had no tangible way to value internet companies or CMOs/CDS. Most other companies just tout AI for operational leverage, which doesn’t yield any meaningful/frothy multiple expansion imo.
we are in a bubble of believing that human intellectual labor defies economic rules of supply and demand. we are not in an ai bubble.
.
.
.
.
.
.
.
.
.
downvote me. i know you want to.
Minima at et ut adipisci consequatur. Nostrum sint voluptas harum tempora nesciunt. Atque et et quos aut qui. Consequatur quaerat fugit maxime placeat. Molestias minima itaque mollitia minima molestiae praesentium quod. Veritatis voluptas expedita ea cupiditate nihil laboriosam.
See All Comments - 100% Free
WSO depends on everyone being able to pitch in when they know something. Unlock with your email and get bonus: 6 financial modeling lessons free ($199 value)
or Unlock with your social account...