We are going to start by beating a dead horse here as breadth continues to deteriorate…
https://x.com/sentimentrader
There are times to be long, and times to step away. We’re in the process of stepping away, continuing our harvest…
Since the stock market has become an AI market, (NVDA and not much else—anyone even remember SMCI??) as every other CUSIP seems to slowly fade away, we thought it would be interesting to briefly talk about AI.
It’s said that men are scared of things they don’t understand. Maybe we’re boomers and just don’t get it, but we really just don’t get AI. Why is everyone so excited?? What’s so great?? Where’s the revenue?? Sure, it’s supposed to save companies money, but that’s not revenue—it’s just productivity and some savings, offset by upfront costs. Will companies need to buy AI chips to get there?? Maybe some AI software?? Sure. Of course they will. But will they need the absolute cutting-edge stuff?? Or can they wait a bit and buy the cheap stuff in a few years when it is all working, as opposed to being a science experiment today??
We were there when the internet first got investor interest. We remember when a really klunky website would cost you millions of dollars, and every Fortune 1000 company decided they needed one of those. Companies like RazorFish (yes, we’ve been in this game too long) had multi-billion-dollar market caps because they built websites. Then, six months later, a bunch of guys in our college dorm taught themselves how to build websites, and the cost dropped in price from millions, to tens of thousands. Today, they’re effectively free on Squarespace—but not before our college buddies made enough to buy fancy cars and show them off…
We think AI follows a similar progression, but with a lot less amplitude. We remember interacting with the internet from day 1. Anyone else remember watching porn on a dial-up modem??
We traded stocks back when the quotes were 15-minutes delayed, and Knight-Trimark would rip you off for an eight going and coming. We were enmeshed in the internet and our lives went online rapidly. We’re now over a year into the AI mania, and the best we can show for it, is that George Washington turned black. We don’t feel enmeshed. We barely even use it, except to ask random sh*t that we can just google instead…
We’re not trying to say that AI isn’t the future. We’re not complete boomers here. We just think it’s a small future, not a big one. It will become a nice tool, sorta like Excel. We’ll all use it, we won’t imagine a life without using it, but it won’t create much revenue. It makes us a bit more productive, maybe saves some money for the big guys, but overall, a big meh.
So, why the mania today? To start with, there are a half-dozen well-funded companies that have told their investors that AI will change things, so they’re desperate to make it change things. Sort of like when Zuck dumped an African nation worth of GDP into the Metaverse and created this…
Why did he keep going as his stock nose-dived and everyone laughed at him?? Things in motion, stay in motion—especially when your core business slows. As a result, you desperately search for something else—anything else to grow. Otherwise, these tech stocks would have earnings multiples akin to more mature businesses in harvest mode.
Going back to the mania at play today, a half-dozen companies are hoarding AI chips. They’re double and triple-ordering these chips—not because they have any idea WTF to do with them. Rather, they don’t want their competitors to crack the code and make AI work. Call it a bidding war in stupidity. We remember the same thing with CSCO, JNPR, GLW, JDSU, etc. Guys just couldn’t get enough networking gear. They double and triple ordered the stuff, because they told the Street that they’d beat the other guy to having the most dominant networks. Remember how that worked out for Global Crossing, Level 3 and WorldCom. How did that work for CSCO when the orders got canceled??
When the build-out normalizes, so will the share prices of the AI companies—by that, we basically just mean NVDA. Maybe AI really is a the greatest invention in the universe. Maybe we’re just boomers. We think we’ve seen this story before. Growth stocks that stopped growing, suddenly pretending they’ve found growth again…