Earnings season asks: are we in an AI bubble?
Welcome to AI Collision đ„,
In todayâs collision between AI and our world:
- Bubble-shmubble
- 13-fold increase in moolah says so
- The chickens are angry
If thatâs enough to get the bubbles popping, read onâŠ
AI Collision đ„ No parties like itâs 1999 thanks
Doomers are back!
Nothing goes up forever. And unless weâre talking about the S&P 500 (see below) then that statement might be reasonably correct.
Then again, Apple, Microsoft, Amazon⊠they too have gone up forever. Well, at least in their entire existence as publicly traded stocks theyâve only ever gone up long term.
I wonât chart them all, but theyâve all hit all-time highs recently. If you look closely at that term â all, time, high â you get an indication that indeed the stock price in the long term has only ever gone⊠up.
But that, of course, is no guarantee thatâs what theyâll do in the future!
Of course!
Which means at some point they must go down. Right?
Well if youâve kept an eye on the news flow into the AI market this week, peeling yourself away from the riveting outcomes of the UK general election, then you might have copped an eyeful of this:
This Reuters article takes a close look at the similarities of the late 90s/early 00s dot-com bubble, explaining:
Echoing the dot-com boom, the information technology sector (.SPLRCT), opens new tab has swelled to 32% of the S&P 500’s total market value, the largest percentage since 2000 when it rose to nearly 35%, according to LSEG Datastream. Just three companies, Microsoft (MSFT.O), opens new tab, Apple (AAPL.O), opens new tab and Nvidia, represent over 20% of the index.
Not to be left out, we got the following headline from notable financial blog, The Felder Report:
Then from Tomâs Hardware:
This piece was referencing a recent Sequoia report about the huge bump in AI-derived revenues to make AI investment worthwhile and for companies to realise the value that the AI hype has been promising.
It notes that amongst the âMagnificent 7â â the big tech stocks all riding the AI train higher â Apple, Google, Microsoft and Meta were all making about $10 billion each from the AI opportunity. And then others like Cisco, Tencent and Alibaba were making about $5 billion each.
But the real kicker is that theyâre all still around $500 billion short in terms of revenue needed to justify the spend and the stock price rises.
And then on to Markets Insider with the following:
This was a different research report taking aim at the AI âbubbleâ. It noted that unless there were some immediate and fast increases in cash flow thanks to AI, then the bubble would imminently burst.
From that article and the Capital Economics report:
“Ultimately, we anticipate that returns from equities over the next decade will be poorer than over the previous one. And we think that the long-running outperformance of the US stock market may come to an end,” Capital Economics’ Diana Iovanel and James Reilly said.
Yowza!
Thatâs enough to make you want to run for the hills, take cover and steer well clear of the AI bubble.
I would expect this kind of hyperbole to continue through 2024. And there may even be times when we see a strong pullback in stock prices that are directly tied to the AI theme.
This week could be the start of that too, as we start to see earnings reports flow through into the mainstream media. It is earnings season again!
If youâre not making money hand over fist from AI and youâre not heavily investing in and talking about AI in your earnings reports, then I would defiantly stay at home.
But expect the next couple of weeks to be AI heavy and expect to see some stocks surprise. For me, I would expect the biggest end of town to all be surprising on revenue and profit expectations across the board.
Why do I say that? Why am I not convinced weâre in any form of an AI bubble yet? Well check out the AI Gone Wild section below to understand whyâŠ
Doomers, stay at home. Your time has not come, and long term, I donât think it will come at all.
AI gone wild đ€Ș
If in one corner youâve got an increasing number of analysts saying that AI is heading into or already in bubble territory. Then on the other, youâve got people (like me) saying thatâs a view, but also if youâre fearful and out of this market then youâre missing massive profit potential.
And I think another aspect of this market to cast the eye towards is those that make memory chips for the worldâs markets.
More specifically, high-bandwidth memory (HBM) chips.
I wrote to you the other week about how AI was bricking my computer. I also wrote about how companies like Arm Holdings (NASDAQ:ARM) and Taiwan Semi (NYSE:TSM) were the ones that were potential benefactors from AI like Appleâs âIntelligenceâ.
For what itâs worth, Arm is up 16% since that piece on 13 June and Taiwan Semi is up 12%.
But I also noted:
⊠thereâs also the memory makers, the cooling technologies, the cabling and power providers.
This is where the growth in AI comes from. Load me up with RAM and load me up with RAM stocks⊠thatâs the direction I think we need to keep looking just so we donât all end up with bricked devices.
So who are these âmemory makersâ and whatâs going on with their bottom line?
Well cast your eye no further than a company you maybe donât first associate with something like HBMâŠ
That company is Samsung (KRX:005930). Well, Samsung Electronicsâ part of Samsung.
Yes, the smartphone and telly maker is also a major player in the worldâs manufacturing of memory chips.
And the explosion of AI is so fundamental to its potential that itâs expecting to report a 13-fold increase in profits this quarter thanks to AI.
Thatâs right folks, a 13-FOLD INCREASE!
But itâs not just Samsung thatâs deep into the HBM market. SK Hynix (KRX:000660) is another thatâs also a key player in this market along with Micron Technologies (NASDAQ:MU).
In fact, Micron is saying that itâs aiming to triple its market share by 2025. The target is around 25%.
And SK Hynix, well, youâve probably not heard of it, but the company already holds about 35% of the worldâs memory chip market. And itâs about to pump a lazy $76.5 billion into its development of AI chips to extend that dominance.
In these three alone â Samsung, Micron and SK Hynix â youâd be hard pressed to find a more important trio to the future of AI technologies, simply because combined they dominate the memory chip market.
The thing is, itâs not all that easy investing in Samsung or SK Hynix as both are traded on the Korean stock market. Itâs not that simple to whip into your ISA or SIPP and load up on stock.
Micron, at least, makes investing a bit easier in that itâs traded on the US markets. But then again, check out the stock price over the last yearâŠ
Thatâs a bit over 106% in the last year and it is now carrying a $146 billion market cap⊠plus in 2023 it made a loss.
So, itâs probably a decent argument to say itâs overvalued. But then again, what is value when youâre talking about such a foundational technology like AI?
And how far into the future do you need to stretch to find earnings to make a stock price valuation worthwhile? Or indeed are we just in a bubble where you need to make your money, then get out?
Well I have my view, and there are my favourite stocks to invest in to take advantage of whatâs going on here too.
Which ones? Well I canât say exactly here â this is after all a free e-letter. But what I am certain of is that right now, bubble or 13-fold increase in profits, if youâre not investing in AI stocks and using AI tools to your full advantage, you need to seriously reconsider your investment approach.
Boomers & Busters đ°
AI and AI-related stocks moving and shaking up the markets this week. (All performance data below over the rolling week).
Boom đ
Tesla (NASDAQ:TSLA) up 24%
Vicarious Surgical (NASDAQ:RBOT) up 32%
Taiwan Semi (NYSE:TSM) up 10%
Bust đ
Cyngn (NASDAQ:CYN) down 43%
Wearable Devices (NASDAQ:WLDS) down 8%
Zeta Global Holdings (NYSE:ZETA) down 8%
From the hive mind đ§
âItâs-a-me, Mario!â The world’s most popular video game character continues to evolve, continues to find his way into news games, and media. But heâs also saying “Itâs-a-noâ to AI.
Intelligence is coming. Sooner than you think. Just remember you need to have the right kind of âsiliconâ in your device to get it to work properly.
Bill Gates saysâŠAI and climate change go hand in hand. So, do you believe him? Will AI fight the change or is it all just a part of a secretive agenda? What do YOU think?
Artificial Polltelligence đłïž The Results
After all the âseriousnessâ of the UK elections, last weekâs poll was intended to be positively silly.
And silly it was.
But we still have a responsibility to look at the results which we shallâŠ
However from all this came a tremendous reply from one of our readers, Matt.
I suggest checking out last Thursdayâs comments section for his full reply to the poll. But to cut a long answer short, the synthesis of his reply, with my reply, ended up in perhaps the most poignant thing we would and arguably should get ASI to doâŠ
How do you brew the perfect beer?
Weirdest AI image of the day
Theyâve finally had enough â r/Weirddallee
ChatGPTâs random quote of the day
“Adventure is worthwhile in itself.” â Amelia Earhart
Thanks for reading, and donât forget to leave comments and questions below,
Great write up! What is your view around uranium and nuclear power expansion and will AI expansion have the power to develop prior to that market exploding ( pardon the pun )?
I’m big on the long term future of nuclear energy…have been for a looooong time. Check out one of my latest interviews on that sector here (External Links are not allowed) we featured it in AI Collision a couple of weeks ago too. But I see AI and nuclear both on a similar trajectory.
Great write up! What is your view around uranium and nuclear power expansion and will AI expansion have the power to develop prior to that market exploding ( pardon the pun )?
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