The AI Collapse

It started with software stocks a few weeks ago - investor panic over the idea that AI was about to make software development companies obsolete.

Then last week the selloff spread to the hyperscalers and their "existential" level of over-spending. All of their available cash flow plus additional borrowing is getting thrown at AI and markets are not happy, however they keep increasing their spending anyways. Amazon and Google were the most recent companies taken to the woodshed.

Here we see Google - which had been the leading hyperscaler - is deja vu of last February:

This week, AI panic broadened out to a whole host of other industries deemed to be at risk of AI "disruption".

"On Wall Street, rising fears about artificial intelligence keep pummeling shares of companies at risk of being caught on the wrong side of it all, from small software makers to big wealth-management firms."

“Every company with any sort of potential disruption risk is getting sold indiscriminately”

First off, what happens in every nascent bear market is that stocks get sold indiscriminately for any reason. But, according to pundits, we're NOT in a bear market so AI must be to blame for every stock that is imploding.

Regarding the economy, this week we got January jobs data which was higher than expected despite major revisions downward to 2024 and 2025 full year jobs. What we see in the chart below is that jobs have been imploding since the start of the AI bubble circa early 2023. Whether that is partly due to the pandemic ending is totally irrelevant - the headlines are claiming that the jobs market looks strong now, but AI is a looming threat.

In other words, they are ignoring the three year downtrend in job creation and instead going to dump the blame on AI:

"The gains were almost all in Healthcare"

"Companies like Amazon.com are slashing their corporate workforces back to levels not seen since the Covid pandemic, although it’s not clear if this is due to genuine AI improvements or using ‘AI-washing’ to cut bloated teams."

Let's recap - the jobs market "looks" strong even though all job gains for January were in healthcare which is non-cyclical and recession resistant. Meanwhile, companies are using AI as an excuse ("AI washing") to reduce white collar headcount. Which is conveniently hiding the end of the cycle:

In summary, AI now has a HUGE Public Relations problem. Why? Because AI is getting blamed for everything from stock market collapse to job market implosion. The public doesn't know that it's the end of the cycle, because they've been told this is the greatest economy of all time. So when markets suddenly crash and the economy implodes, they will blame AI. And then the mega cap Tech companies will be held accountable.

That is the Tech bubble investment hypothesis in a nutshell.

Therefore, what I predict is going to happen next is that we will have a pandemic level of crash or something far worse. Followed by ZERO pandemic stimulus. And then today's newbie investors will learn what it's like to go through a real bear market and a real recession.

They will be shocked to learn that stocks DON'T go up in a recession.

Anyone care to "extrapolate" where consumer sentiment will be in a year from now?