We’re nearing the fourth anniversary of the launch of ChatGPT, and with it, the end of the fourth year of the AI bull market.
During that time, the S&P 500 has roughly doubled, and the Nasdaq Composite has done even better, but the trillions of dollars of new wealth haven’t come without investor skepticism. Forecasts of an AI bubble have not gone out of style, even as they have been dead wrong so far.
Missed Nvidia in 2009? This Rare Signal Is Flashing Again. In 2009, a “Double Down” signal flashed for a little-known chipmaker called Nvidia. For the first time in years, that same “Total Conviction” signal is flashing for a company 1/100th the size of Nvidia. Continue »
Billionaire Ray Dalio recently said that an AI bubble is “close,” citing rising interest rates and the level of debt being raised for the data-center build-out. Contrarian investor Michael Burry of The Big Short fame said this week that the stock market is in its first stage of grief: denial.
The historical analog that most investors compare the current moment to is the dot-com boom, which was similarly sparked by a revolutionary technology: the internet. However, there are some important differences between that boom and the current one. The dot-com bubble was driven in part by a wave of unprofitable IPOs bid up based on invented metrics like eyeballs, and that had not demonstrated a viable business model.
The current boom has been primarily driven by entrenched tech giants that are all very profitable, as well as the semiconductor sector, which has reaped the gains from a wave of capital investment. Chip stocks have almost all seen profits soar or are forecasting major gains as the AI boom plays out.
The two AI labs at the center of the boom, Anthropic and OpenAI, have yet to go public but are chasing valuations of around $2 trillion. Anthropic did report a profit in its second quarter, while OpenAI is still operating at a wide loss.
Image source: Getty Images. Image source: Getty Images.
The original computing boom
When investors talk about an AI bubble bursting, they are mostly referring to a potential collapse in chip stocks, which have been the biggest winners. As the chart below shows, one popular semiconductor ETF, the VanEck Semiconductor ETF (Nasdaq: SMH), has quadrupled in the last three years.
Instead of comparing the recent semiconductor boom to the dot-com era, the growth of the personal computer (PC) since its invention in the 1970s may be more informative. After all, the PC is powered by chips and has been at the center of earlier tech booms like the dot-com one.
