WIth recent recovery and some AI names valuation getting really stretched the talk of bubble is resurfacing everywhere. Today I saw Apollo released this chart..
The important lesson is…
The valuations stretch really further in bubble
Unlike dot.com, the investments are powered by companies like $META, $GOOGL, $AMZN which have true earnings power and profits
Even if the dot.com scenario plays out, we have another 1 to 1.5 years of bull market and at least another 15% gain in SPY
You can choose to sit out, but you will be missing significant profits
Lastly, the hallmark of bull market is sector rotation, so, if you are not comfortable chasing AI stocks, there are many other sectors which can join, so you have lot of other shoes that may fit your feet
I have been pointing employment is weaker than the numbers say
Consumer is weaker than the numbers say
Housing is weaker
Normally, US consumer is the engine of US economy; However, something has flipped in the last 2 or 3 quarters, today AI related investments are driving the economy much more than US consumer
Why the above is important? As long as AI investments continue, as long as companies continue to increase their capex, this rally will continue
Someday AI capex cycle will cool down, and that along with other weakness may bring the market down or recession, etc. But for now, the music is on and you need to keep dancing.
This is my trading account and couple of trades ($MDB) I made a mistake of capping my profits and few like Google, I took profits at $200… If i was not that timid, it could be even 15%… In a bull market, not being aggressive is a mistake.
Remember, when the markets are good, you are a genius!!! So winter will come, until then play the music loud, dance like crazy…
The top 7 start-ups, have a combined valuation of $1.3 T. They are:
OpenAI: $13B revenue, 225% YoY growth
Anthropic: $5B, ~120% YoY (est.)
xAI: $3.2B, 3100% YoY
Databricks: $4B, 33% YoY
SpaceX: $15.5B, 9% YoY
Stripe: $19.4B, 17% YoY
Anduril: ~$1B (2024 latest), 138% YoY (2024)
If Netscape release launched the internet/ dot.com era, ChatGPT is the “netscape” moment of AI. Bespoke makes that argument in this post Bespoke Interactive
Based on this we have massive gains ahead of us. It may or may not happen, but don’t underestimate what an absolute bubble might look like.
We have all seen the recent news of OpenAI contract/deal/ friendly handshake, whatever you want to call, with $ORCL, $AMD and how they propelled their stock prices, etc. Also, there are lot of announcements on companies from $NVDA to various entities committing capital to OpenAI.
OpenAI has almost 20 GW worth of compute capacity purchase agreement, to build such capacity would require $1 T. There are lot of questions on these deals, one important item to note is, lot of these builds, investments flow based on meeting certain performance criteria.
The below diagram shows the relationship and the circular nature of these deals. There are two major players in this, one is OpenAI, and the other one is $NVDA.
Since OpenAI is not a public company and doesn’t have to disclose their financials, and also they have already announced they are expected to lose $120 B between now and 2029, so the real ‘canary in the colamine’ is $NVDA earnings.
When you see $NVDA miss an earnings, or the guidance for the next quarter is below street expectation, expect a bloodbath. For those who are worried that they cannot really hedge the earnings, don’t bother, the cost of hedge will be so high, and often the hedge becomes useless once the earnings are out. So you can still protect after the news.
Having knowledge of a high percentage bet.
Planning to execute that high percentage bet.
THEN playing the game as if that bet does not pay (scenario doesn’t have significant probability) is extremely difficult to do without big brass key strokes.
I appreciate this post simply because you are calling it out.
