Thanks for the feedback. Michael, as usual, you make very provocative points. In my haste to hit the send button last night, I pushed out an early version that overlooked a critical point. The third paragraph from the end should read as follows:
“Delusion? You tell me. The explosive upsurge in spending by leading AI companies flies in the face of the low-cost DeepSeek alternative. The extraordinary cost efficiencies of the Chinese version of OpenAI fundamentally challenge the capex- and energy-intensive spending trajectories that underpin the current AI binge. My indictment of the AI frenzy has nothing to do with the obvious brilliance of a revolutionary innovation. However, like the dotcom bubble of the late 1990s, the market is way out over its skis. In Charles Mackay’s lexicon, the “madness of crowds” seems to be an apt description of AI valuations as yet another delusional mania. The markets may have initially shrugged off the one-day swoon associated with the DeepSeek shock. Is that the pin than pricks this bubble? Over time, I suspect there will be some serious rethinking of that critical question.”
Barton Biggs I recall always believed as does Steve that the role of an analyst is to promote serious deep thinking rather that predictions. Steve continues to demonstrate that ethos.
34% of the S&P500 is worth noting.
But, isn’t each of these 7 operating on different business metrics? Google and Facebook offer services for free, in return for data and watching advertising. So aren’t Facebook and Google just the modern equivalent of a TV network with surgical precision?
Amazon doesn’t make real money on its store, but rather its cloud services underpinned by government contract, same with Microsoft?
Nvidia is a cio maker but their secret sauce is their exclusive programming.
Apple is a true consumer platform underpinned by retail sales with no give up to retailers and tens of billions paid by google to be their web browser.
In short, I don’t see AI as a revenue generator anywhere yet and DeepSeek is free and open source. Ouch! Yeah, China is the new master of lowering prices through scaling up and blowing out the high cost competitors. And soon DerpSeek will be just another provider as the equivalent of Moores Law now moves in weeks and months, not years.
Now the game is “Government”. Musk spends at least $300 billion to become President and what’s the game? No regulation, no competition, no fines from the EU etc. Tech are becoming the next generation of corporate welfare queens.
Are markets at risk? Yes they are, Steve is right. However, it is due to the higher interest rates that are coming in my opinion, along with and understanding that internet advertising is a complete waste of money.
Trump has no vision, no theory, no plan beyond tomorrow’s headlines. He just says wherever he needs to distract and divert attention.
He is running the Joseph Goebbels playbook from 100 years ago. Here it is:
• Avoid abstract ideas - appeal to the emotions.
• Constantly repeat just a few ideas. Use stereotyped phrases.
• Give only one side of the argument.
• Continuously criticize your opponents.
• Pick out one special "enemy" for special vilification.
The German people lapped it up and it didn’t end well for anyone, so let’s hope the American people can get beyond their tweaked algorithms and see the truth before it’s too late. This is not the Matrix.
Well reasoned analysis. I did hear one interesting hypothesis that the March 2000 NASDAQ crash started when the index had to remove some stocks to allow others to come into the index and there were no buyers for the stock(s) being removed from the index.
Index churning is a constant. You are correct in recalling that back in 2000 the churning occurred when oxygen was also being sucked out of the market, exacerbating the bursting of the bubble.
Thanks for the feedback. Michael, as usual, you make very provocative points. In my haste to hit the send button last night, I pushed out an early version that overlooked a critical point. The third paragraph from the end should read as follows:
“Delusion? You tell me. The explosive upsurge in spending by leading AI companies flies in the face of the low-cost DeepSeek alternative. The extraordinary cost efficiencies of the Chinese version of OpenAI fundamentally challenge the capex- and energy-intensive spending trajectories that underpin the current AI binge. My indictment of the AI frenzy has nothing to do with the obvious brilliance of a revolutionary innovation. However, like the dotcom bubble of the late 1990s, the market is way out over its skis. In Charles Mackay’s lexicon, the “madness of crowds” seems to be an apt description of AI valuations as yet another delusional mania. The markets may have initially shrugged off the one-day swoon associated with the DeepSeek shock. Is that the pin than pricks this bubble? Over time, I suspect there will be some serious rethinking of that critical question.”
Always appreciate your thoughts Mr. Roach.
Whenever the opportunity presented itself, I’d dig in and read with care. I’m very happy to see you publishing here now.
Nice to see the nod for Barton Biggs too. A sage voice amongst many who were considerably less so. Wise, and humbled by time, like yourself.
Thank you.
Barton Biggs I recall always believed as does Steve that the role of an analyst is to promote serious deep thinking rather that predictions. Steve continues to demonstrate that ethos.
34% of the S&P500 is worth noting.
But, isn’t each of these 7 operating on different business metrics? Google and Facebook offer services for free, in return for data and watching advertising. So aren’t Facebook and Google just the modern equivalent of a TV network with surgical precision?
Amazon doesn’t make real money on its store, but rather its cloud services underpinned by government contract, same with Microsoft?
Nvidia is a cio maker but their secret sauce is their exclusive programming.
Apple is a true consumer platform underpinned by retail sales with no give up to retailers and tens of billions paid by google to be their web browser.
In short, I don’t see AI as a revenue generator anywhere yet and DeepSeek is free and open source. Ouch! Yeah, China is the new master of lowering prices through scaling up and blowing out the high cost competitors. And soon DerpSeek will be just another provider as the equivalent of Moores Law now moves in weeks and months, not years.
Now the game is “Government”. Musk spends at least $300 billion to become President and what’s the game? No regulation, no competition, no fines from the EU etc. Tech are becoming the next generation of corporate welfare queens.
Are markets at risk? Yes they are, Steve is right. However, it is due to the higher interest rates that are coming in my opinion, along with and understanding that internet advertising is a complete waste of money.
Trump has no vision, no theory, no plan beyond tomorrow’s headlines. He just says wherever he needs to distract and divert attention.
He is running the Joseph Goebbels playbook from 100 years ago. Here it is:
• Avoid abstract ideas - appeal to the emotions.
• Constantly repeat just a few ideas. Use stereotyped phrases.
• Give only one side of the argument.
• Continuously criticize your opponents.
• Pick out one special "enemy" for special vilification.
The German people lapped it up and it didn’t end well for anyone, so let’s hope the American people can get beyond their tweaked algorithms and see the truth before it’s too late. This is not the Matrix.
Well reasoned analysis. I did hear one interesting hypothesis that the March 2000 NASDAQ crash started when the index had to remove some stocks to allow others to come into the index and there were no buyers for the stock(s) being removed from the index.
Index churning is a constant. You are correct in recalling that back in 2000 the churning occurred when oxygen was also being sucked out of the market, exacerbating the bursting of the bubble.