Far too many comparisons have been made between AI and DotCom.
There is one simple difference between this AI period and the late 90s.
These AI firms are actually making money, unlike the DotCom companies.
Nvidia just smashed their earnings with beats on EPS and revenue, while Google has released Gemini 3 which seems to be the greatest thing since sliced bread.
And Salesforce has been the most notable who has directly put it down to AI as being the largest cost saver.
It is difficult to reconcile a stock that has done thousands of percent over a few years (Nvidia) with the belief it’s a normal market, but the revenue is very much real.
Amazon, Microsoft, Google, Meta, Oracle and Broadcomm are all fighting to compete across each others’ different purposes.
But each with the goal of not making the next ChatGPT (which I do think is ridiculous and will hopefully die a quick death), but to lower their own, and other business’, margins.
And what drives the stock market? Profitability and returning cash to shareholders.
See lots of people attach narrative to things.
But the one narrative that doesn’t lie is money - and unless Nvidia has been committing the largest fraud ever by altering their income statements, I’d suggest commentators stop focusing on whether AI is a bubble and purely on that one number that matters.
And I refer back to the piece I wrote months ago.
Completely one shotted them.
And the constant chatter about the AI bubble is a bit mental to me considering.
Now where there IS an AI bubble is in the smaller firms who are trying to fight for a piece of the pie, who have loaded up on debt and who are private (ahem, OpenAI).
There I think there is a bigger risk, and I wrote about the real bubble a few weeks ago too.
Private equity/private credit is where things don’t really make sense to me.
You have such an opacity in the market that all this debt load creates big problems with pricing the output and valuation.
Lots of these firms are completely unprofitable - I mean, OpenAI has no date on when it expects to make any money, which is why Elon is going so hard at Sam in my view…
But us as listed equity investors, we don’t have to worry so much…
Apart from perhaps looking at any potential big links between private and public, most likely which would be the banks and lenders, or any large listed LPs (limited partners who provide money to private equity funds to invest).
Like, if Microsoft were to have to write down their investment in Open AI, that would be a decent hit, and could shift over to some of the data centre hosts too.
But if we’re looking for a firm that’s insulated from that feedback loop, there has to only be one.
Google.
Google is going to be as big as Nvidia pretty soon.
Eventually Nvidia’s demand will slow which will lead to investors to pull back a little and find the next best horse.
That next best horse is Google since they are completely full stack, from data centres all the way to the consumer frontend of Gemini.
And there’s a lesson in there…
A few years ago everyone said Google would have to bow out and they were heading to irrelevance.
But I recall one earnings call when they’d made something like $45bn in one quarter, beating estimates.
That caused me to reassess since they had still done that for a while whilst people were calling for their demise.
Sort of getting that vibe with Apple now by the way…
But anyway, lesson there is you cannot say a firm is done for when it has so much cash.
Yes they went woke, but they didn’t go broke.
And if the return on invested capital is good enough, companies with a large cash holding will be forced by their shareholders to venture into the hot sector, but to do it well.
Apple I think is cautious.
There is no need for them to do it - perhaps because Tim Cook knows he can just run the same balance sheet shenanigans he has done for years by buying back shares rather than innovating (which, by the way, investors are more than happy with)…
But I think an element of surprise will spring from Apple in the same way Google has done with creating Gemini so well…
They are going to develop something which causes a further shift higher in the stock market, which no one really expects.
It will probably be AI related and probably in robotics - that is my gut feel.
They scrapped the Apple Car, but that is because it ventured too far away from the person - Apple is a person product; they had no business being involved in making cars.
You look at Apple and you think ‘home’, ‘office’ or wearables.
Apple Home already exists, so why not have a robot in the home?
Look, this might just be a pipe dream and I might be down the wrong hole with robotics, but Apple is set to do something for sure.
And this is the key point.
These firms are already rich.
DotCom was a shithole of companies without a proven business model coming to market on this new thing that no one was really using yet as consumers.
Of course pets.com only made $3.8m or something after listing at a valuation of $85bn.
Why wouldn’t it? /s
Vast contrast to today where these big companies are making billions every quarter, and in some cases, a billion every few days…
The key takeaway from this is bubbles can only be bubbles if valuations are completely divorced from any profit…
And right now, we’re seeing the very real revenue and profit, and very real cost savings from this ‘bubble’ across the spectrum of the market.
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