Artificial Intelligence: The Last Bubble
This morning, Goldman Sachs upgraded Nvidia to what I call "Strong Ponzi Scheme".
Looking back, I think we will realize this was the apex of the dumb money bubble...
Nvidia has been at or near the epicenter of every Tech bubble for the past ten years - video games, crypto currencies, virtual reality, cloud computing and now artificial intelligence. Why? Because the CEO Jensen Huang is a quintessential salesman. He sources his semiconductors from Taiwan Semiconductor and then he wraps his proprietary technology around them.
Unfortunately, there is no actual business case for artificial intelligence for the vast majority of major companies. AI won't substantially benefit United Airlines, Exxon Mobil, McDonald's, Marriott, Boeing, Lululemon or any other company you can mention. CEOs don't know what to do with AI, so they tell their IT departments to go make a prototype application. It's only a matter of time before they realize it's just the latest Tech hype cycle. It's the data warehousing fad circa 2024.
Ironically AI doesn't even benefit most Tech companies. Semiconductors sales were down -8% in 2023:
"The Semiconductor Industry Association (SIA) forecast a 13.1% jump in global chip sales to $595.3 billion, compared with a drop of about 8% in sales in 2023."
This is the equal weight semiconductor index. Semiconductor sales peaked three years ago in 2021:
Fittingly, AI which is a totally manufactured bubble, marks the apex of the overall passive indexing "dumb money" bubble. Given the investment industry's mass migration to mindless indexing regardless of valuation over recent decades it was only inevitable that the "market" would eventually winnow down to one sector in 2021, then seven stocks in 2023, one company in 2024.
Here we see that over the past one year, Nvidia has gained 300% while the average U.S. stock has gained 0%:
A market that is so heavily dependent upon one stock is obviously a dangerous market. There have been many warnings on this topic over the past year, the most recent one came from BofA (Hartnett) on Friday:
As I write, regional banks are once again imploding. Recall that it was one year ago during the 2023 bank run when the AI bubble first took off. Now today's speculators are looking to take the bubble to a whole new level of extreme valuation.
It's not going to work. The over-reliance on a few stocks is now a systemic risk to the market.
But don't take my word for it, here's what Goldman Sachs said just last week. Right before they upgraded Nvidia to Strong Ponzi Scheme:
