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The AI Tulip Bubble

My overall hypothesis is that AI/Nvidia is Wall Street's Gamestop.






Once again, Nvidia delivered the goods last night. Jensen Huang, Nvidia's CEO is the consummate salesman. He is selling massive quantities of AI hardware to cloud service providers who are in turn selling massive quantities of cloud server capacity to corporate clients who have no clue how to monetize it. All they know is that every time they mention "AI" on an earnings call, their company stock options mint millions of dollars. What else is there to know? As of now there are no earnings-accretive final applications for AI technology. It's a modern day Tulip Bubble. If you ask 10 people what AI means from a business perspective, you will get 10 answers, all of them marketing bull shit. The problem is that humans don't trust computers to make decisions on their own. Humans want to tell computers what to do, instead of the other way around. There is an entire science fiction genre around AI computers going rogue, as far back as 1969 when the computer "HAL" from 2001 A Space Odyssey accidentally went haywire and killed everyone. An unfortunate programming glitch. So it is that we now have a parabolic stock rally with no definitive business case in mind aside from potentially advancing the elimination of humanity.



Nvidia is Wall Street's Gamestop. The pump and dump scheme that ends many a career in stock trading. No one on Wall Street really understands technology beyond the marketing hype. Therefore they all think this Tulip bubble is in its early stages. Few of them know that the AI hype cycle has pumped and dumped several times since HAL went rogue. Recall that at its peak, Tesla was a $1.2 trillion stock and Elon Musk was forecasting 50% annualized growth into the indefinite future. That was the top. Now the stock is worth half that amount. His prediction was dead on arrival. Jensen Huang has been at the forefront of several bubbles - cloud, big data, crypto, virtual reality, now AI. All of those bubbles peaked and collapsed well before anyone expected.





This latest melt-up is occurring at a time when the entire Nasdaq is rolling over. Even within mega cap Tech, stocks such as Apple, Microsoft and Google have become notable laggards. For the past year, the consistent theme of this "rally" has been a narrower and narrower set of stocks making new highs, inexorably leading to what I call the "Single Stock Investment Hypothesis".


Here we see that the average U.S. stock has gone nowhere for the past year:







Making things more interesting is the fact that Nvidia is negatively correlated with regional banks. Last year when the AI rally accelerated, banks crashed, but they were deeply oversold and the Fed created the BTFP bailout program so they quickly joined the rally. This year banks are overbought and BTFP ends March 11th. Meanwhile, Nvidia is up 600% off the 2022 lows, hence somewhat overbought as well. So it is that now we can sit back and watch a late stage Tech melt-up amid a late stage bank meltdown.


What human AI calls a "soft landing".





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