The AI hype has generated a bubble that has already matched many previous ones, and could yet go somewhat higher, but bubbles always end the same way – implosion. The hype over a new technology typically leads to irrational exuberance, which in turn leads to investors jumping on the bandwagon without first assessing the fundamentals. Momentum chasing without due dilligence is a recipe for disaster. The AI stocks now dominate the S&P index, but such an over-concentration is a red flag.
Warren Buffet guages risk by looking at market cap of all publicly traded stocks as a percentage of GDP, and it has now reached a staggering 240%.
The entire AI sector forms a circular firing squad, with companies inflating each other’s value in a way that amounts to fraud. Nvidia is the one on actually making money, as everyone is buying their chips, but as the rest continue to burn through money, eventually their purchases sill be discontinued.
Several major tech companies are planning an IPO this year, but each of them consistently loses money. An IPO in such a case is an attempt to dump a money loser on the public, thereby achieving exit liquidity for the billionaire founders. Normally, a money losing stock would not be permited to join the indicies, but in an oligarchy like the US, the rules are made by the billionaires. Musk has managed to get the rules changed so SpaceX can join on a fast track. This will have the effect of index funds being forced to buy the stock on behalf of passive investors like pension funds. Open AI and Anthropic will follow suit later. In other words, the retirement accounts of ordinary people are being asked to bail out chronic money losing companies so their founders can walk away unscathed and even richer. Musk has his eye on being the first trillionaire. This is a grotesque financial fraud on the public.
