Wall Street sees AI bubble coming and is betting on what pops it

Posted by simonpure 1 day ago

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Comments

Comment by oldjim798 1 day ago

This can't happen soon enough. AI is a vacuum sucking up a lot of capital and attention that could and should be put to much much better uses

Comment by schnebbau 1 day ago

We could go back to crypto and NFTs being the capital darlings?

Comment by dymk 1 day ago

Those did not suck up nearly the capital and attention that AI is. They were like GameStop and AMC.

Comment by infecto 1 day ago

But they also did not create the same amount of value that AI is. Certainly there is hype but also value is being generated.

Comment by dymk 22 hours ago

While I welcome the places where it is bringing value, I’m more worried about all the places it’s being shoehorned in that are a waste of money, fueling the bubble. The blast radius is going to be spectacular.

Comment by dzhiurgis 7 hours ago

Then financial system doesn't create value despite being like 20% of economy (crypto is perhaps 5% of finance system).

Comment by infecto 2 hours ago

It creates a lot of value though. You may not see it but it exists. People so easily forget what you he financial systems looked like historically. Everything from having fluid loans of all type that don’t discriminate, to ipos, it’s easy to sell a business or to buy one. If I am buying stock it’s never been easier and modern spreads are some of the lowest in history.

Comment by oldjim798 16 hours ago

I have yet to see any value generated from AI. Just as useful as NFTs

Comment by infecto 2 hours ago

That is just absurd. You are stuck in your head if you genuinely think that is true. Reminds me of some of the “10x engineers” I have worked with in the past that were so arrogant they ignored reality.

Comment by tester756 23 hours ago

On the other hand we've never invested as much in hardware & software optimization as we do now

Comment by palmotea 22 hours ago

> On the other hand we've never invested as much in hardware & software optimization as we do now

Fat lot of good that does me: all the client-side software I use is as bloated as ever.

Comment by ASalazarMX 21 hours ago

But, you see, programmer time is expensive, hardware is cheap in comparison. Incredibly cheap when it's your user's hardware.

Comment by barbazoo 1 day ago

Like what? Do you have any insight into what money might be spent on instead?

Comment by ishtanbul 1 day ago

Real infrastructure and housing

Comment by baq 1 day ago

Investors don't want 5x revenue valuations, they want 30x growth.

Make 'real infrastructure' and 'housing' companies attractive products for investors to buy and they'll buy. (No idea how to do that, don't ask me! :))

Comment by AndrewDucker 23 hours ago

That's the thing. You have to remove the unsustainable nonsense that looks like 30x growth in order for investors to be willing to invest in 5x revenue valuations.

(If you have real things that are actually producing 30x growth then that's fine, obvs.)

Comment by tharmas 1 hour ago

Tax incentives?

Comment by ASalazarMX 21 hours ago

Maybe investors shouldn't treat inversion like casino gambling. With their capital, they could make inversions (or even their own businesses) that grow slower but steadily.

Comment by swexbe 1 day ago

Most investors have more money invested in their house than stocks.

Comment by waffletower 22 hours ago

I think housing might have some potential with federal subsidies, particularly in the container scale pre-fabricated home market.

Comment by danaris 22 hours ago

No.

We need to kill the idea that a) this is what investors should be looking for, and b) it's even possible aside from a 1 in 1,000,000,000 fluke.

All of these economic instruments are supposed to be there to serve the needs of real human people, not just to make the wealthy even wealthier. We need to break this cycle of ever-escalating capital chasing capital, and get investment in things that will actually make people's lives better.

Comment by 21 hours ago

Comment by saubeidl 23 hours ago

Maybe markets that optimize for capital growth are just a bad way to allocate resources?

Why did we decide that return on capital investment is the metric to optimize for, at the expense of everything else?

Comment by baq 22 hours ago

capitalism is kinda-sorta weaponized greed, but in a way that tries to promote competition and thus create actual value. IMHO blaming regulators for not nudging capital in the politically desirable way is appropriate: either they shouldn't be regulating because they don't know how, or they're regulating according to a hidden policy instead of whatever they say. (cue 'why not both'.)

Comment by dragonwriter 22 hours ago

> capitalism is kinda-sorta weaponized greed

There is no need for hedging language, it is entirely weaponized greed.

> but in a way that tries to promote competition and thus create actual value.

No, its in a way which tries to remove constraints from the power of the capitalist class, and full enable their dominion over society -- that's what drove it and how it evolved from prior systems.

The assumed existence of competition (along with other assumptions) making it optimal was a much later, after the fact attempt at rationalizing it in response to criticism, and actual attempts to promote competition were later yet reforms limiting capitalism, not part of its essence.

Comment by palmotea 22 hours ago

> capitalism is kinda-sorta weaponized greed, but in a way that tries to promote competition and thus create actual value.

In practice, capitalism itself doesn't really promote competition, but rather competition is an externally-enforced situation required to keep capitalism from going off the rails. IMHO, capitalism naturally evolves towards monopoly (otherwise antitrust laws would be unnecessary).

Comment by mike_hearn 22 hours ago

What is "real infrastructure", exactly?

Comment by ElevenLathe 22 hours ago

Are you being deliberately obtuse? In case you aren't, the answer is roads, bridges, public transportation, electrified rail, grid modernization, utility-scale storage and solar. We need these things desperately, and instead we're going to get sheds full of video cards from here to the horizon.

Comment by mike_hearn 22 hours ago

If you want to spend your money and time building bridges for electrified rail, go ahead. Nobody is stopping you. Other people clearly feel they have enough of that and would rather invest in datacenters. Who are you to say they're wrong?

Comment by ElevenLathe 21 hours ago

I say they're wrong, and I do so in my capacity as a citizen. These large pools of capital should not be allowed to follow the whims of a handful of unelected oligarchs who have clearly lost the plot. In a functioning society, this scale of decision would not be left to the whims of international finance capital, but decided via democratic means. It's unfortunate that the last scraps of the Fordist labor truce are unraveling, because it means that I and my comrades are going to have to discipline this generation of oligarchs just like our grandparents did the last really nasty one.

Comment by danaris 20 hours ago

This kind of absolutist individualist argument just rings more and more hollow as we see the very real consequences of that philosophy for our society.

Who am I to say they're wrong? A human being, that's who. A human being who lives in a modern society that does not have to prioritize the whims of the wealthy few over the needs of the many. We can choose to set stringent requirements on people who have that much money, and therefore power, and that is not evil. Indeed, it is the furthest thing from it.

Comment by mike_hearn 18 hours ago

And what happens when those people don't want to have your requirements "set" on them? Do you force those peaceful people to do your bidding with violence? Would that not make you the evil ones?

Look at the reply from the guy I was questioning. It took just two or three mild questions for him to go full Hitler, talking about how his comrades will have to "discipline" a whole generation of "oligarchs" (i.e. anyone who makes things he doesn't personally prioritize).

Collectivist thinking always leads to violence, and eventually societal failure.

Comment by ElevenLathe 18 hours ago

There's nothing violent about using elections to make the decision to tax rich people so that we can spend (formerly) their money building roads and bridges. The idea that this is the road to Hitlerism is absurd, and thankfully this rhetorical stance no longer rings the slightest bit true to anyone within earshot of the working class.

Also, as I'm sure you're aware, I was using "discipline" as a term of art to mean "withhold our labor until their profits suffer and they are willing to negotiate". This was the strategy employed the last time we seriously dealt with concentrated capital getting high on its own supply. It is also not a form of violence. What's the alternative? Capital using force to require us to work against our will? Would you call that slavery? Or just serfdom? Which do you advocate?

Comment by mike_hearn 2 hours ago

> There's nothing violent about using elections to make the decision to tax rich people so that we can spend (formerly) their money building roads and bridges

The results of votes are enforced on the losers using the police, who will do so violently if required.

You mentioned the Fordist truce. The unions the auto industry dealt with weren't just a bunch of people refusing to work. They were frequently violent, and they also used stealing other people's property as a standard tactic to prevent anyone else from working also. Those were violent times.

Comment by ElevenLathe 24 minutes ago

We can talk about how violent taxing the rich is once we have the first instance ever in history of the police locking up a rich guy for refusing to pay their taxes. Even then, sure, I'm fine with that level of violence. We would live in a utopia if that were the worst kind of state violence we had to deal with.

Go ahead and twist my normal, non-radical politics into whatever shape you want. You're the wing nut, not me. Normal people want normal stuff out of politics: functioning infrastructure, upward mobility, a future. Only the most warped, unreachable paint huffers are willing to throw away all possibility of a normal country for the "freedom" of a few dozen rapacious sociopaths. This means that we will ultimately win. Unfortunately normal people have been asleep at the switch for at least a generation, so you're probably going to be able to drag us through several hellish decades, maybe centuries, until we can right the ship.

I'm sure I'll see you in the camps, so at least we'll have that in common. Have a nice day.

Comment by danaris 55 minutes ago

> The results of votes are enforced on the losers using the police, who will do so violently if required.

The whims of the dictator are also enforced on the public using police.

All human rules, laws, customs, and edicts are enforced, ultimately, with violence of one sort or another. There is no way to avoid the threat of violence being the bedrock of the power of the state, and in the absence of formal states the strong would use violence to enforce their desires until they became states.

So if you're an anti-statist, just say so. (So we can all dismiss everything you have to say as coming from a place of absolute ignorance of what's needed to live and operate in the real world. If we were to abolish all states tomorrow, and erase the very memory of their existence from every human alive, by Sunday new ones would have arisen to replace them, one way or another, because they are how humans organize themselves.)

Comment by danaris 15 hours ago

> Collectivist thinking always leads to violence, and eventually societal failure.

This statement is so blatantly, staggeringly false that I can't even fathom how to begin to discuss this topic with you.

Comment by dwa3592 1 day ago

Healthcare research to start with.

Comment by DivingForGold 1 day ago

https://archive.ph/2G0uD#selection-1219.0-1219.64

Comment by kryllic 1 day ago

If there wasn't an ongoing de facto recession, I would wager that the overvaluation of companies _would_ be at or near dot-com bubble levels. These AI companies have plenty of venture capital, but consumers are probably not as influential as they were back then. I agree we likely won't see a dotcom-like crash, but there will still be fallout that will take months to settle.

Comment by omgJustTest 1 day ago

IMO what you are describing is distributed choice vs concentrated choice.

It's one of my main arguments against a crash: why would one (1) or a few choose to do that?

Comment by finghin 1 day ago

Unless I misunderstand your question, isn’t the obvious answer just short-term profit?

No investor has thus far invested something they can’t yet cash out.

Comment by omgJustTest 23 hours ago

If there's no better growth story probably people have already trimmed for short term gains.

In some ways the technology companies, which such large growth, are their own consumers.

Unless they feel pressure from another growth story or a technical monetary effect, and I emphasize story because its about future returns, its unlikely.

Additionally this has grown so quickly that there is amazing talent being applied to these problems, its hard to imagine every good person has been sufficiently compensated that progress will stall.

Comment by miohtama 1 day ago

I sincerely hope this would kill Oracle with their karma

Comment by leviliebvin 23 hours ago

What is missing from the picture with all these articles is the numbers. LLMs already have a few solid use cases as translators, general document processors, coding helpers ...etc. So the first question is, to what extent does this demand support the investment? Would it be enough if basically every SP500 corp provided paid LLM access to their employees? Or is the investment so big, that people are betting on less solid applications, like Agentic AI, with some non-trivial automation?

Comment by gmerc 23 hours ago

Why pay much when you can get bare metal China LLM without the premium?

Comment by lostmsu 9 hours ago

Fully utilizing hardware is not trivial.

Comment by s1mplicissimus 1 day ago

I tried figuring out how to bet on the AI bubble popping since the circle investments - that's by the way the one thing the article does not explain.

Can someone from the dear HN financially savvy users clarify what kinds of specific bets could be placed to that avail?

Comment by infecto 1 day ago

We know over the long term it is exceptionally hard to beat the market, timing the market is near impossible. Everyone keeps talking about a bubble but we don’t know how big of one it is or when/if it will pop.

You are better off being in the market than betting on an idea that you don’t know will even happen or when.

I definitely think there is over enthusiasm in the space but at the same time I am not convinced that the demand for compute has let off yet.

My take is always you could build up some cash reserve in treasuries or somewhere like that and deploy it if a pop does happen. You will miss out on the potential growth but if you wanted to participate that is one way imo.

Comment by square_usual 20 hours ago

> You are better off being in the market than betting on an idea that you don’t know will even happen or when.

This is true if you're willing to wait forever, but if you have near- and medium-term goals, you should not be investing money in the market if you believe there will be a crash. I have such goals and I'm putting my money into treasuries instead of putting more into what I believe is a very overvalued market.

Comment by infecto 2 hours ago

Being in the market does not specify what market. It’s more about you being unable to predict movements and it’s better to always be in than out.

Comment by spwa4 23 hours ago

But isn't that in the past?

Look at stocks: everything is synchronizing, for years now. Either something like 85% of stocks all go up, with a predictable difference between them (meaning, e.g. META moves about double GOOG does, whichever way it goes, up or down), or 85% of stocks all go down. SPY, VOO. And in fact the only ones that make a move to speak of are the MAG7. It isn't just that they're the fastest to rise, they're the only ones that beat the market.

Zoom out and you'll see that in recent years you can include even non-stock-market assets in this argument. Housing ... same (of course there I understand), Gold, surprisingly, same.

And that's ignoring the warnings European authorities are issuing these days. It's pretty public information at this point that European authorities expect open ("kinetic" if you will) hostilities between Germany, France and Russia to open somewhere between March 2026 and Jan 2027. That will crash the stock market. That will crash the housing market. That will probably even crash the gold market, AI or no AI. Imho, that will crash the value of fucking Trump tower. The places these warnings are coming from are very serious and not known for joking on these matters (like the German chancillary, which if anything is far too conservative, or the French department of health, which has literally never issued a warning like this)

Comment by infecto 21 hours ago

But isn’t what in the past? The market has always over time gone up to the right.

Very serious and not joking? Ok go time the market. My point stands market timing is impossible. Historically you have always been best suited by being in the market. Could that change? Sure but I don’t think you can time that or be prepared for it.

Comment by spwa4 3 hours ago

> But isn’t what in the past?

The idea that you can build in safety against stock market crashes by investing in treasury funds or the more general stocks vs bonds. They have synchronized and if something goes wrong it will be a total disaster for people and pension funds regardless of the traditional wisdom.

Comment by rsynnott 6 hours ago

Generally it's not enough to know that something is a bubble; to bet against it you kind of need to know _when_ it collapses. For every Michael Burry there are a lot of investors who correctly identified that things were broken, but were sufficiently off on the timing that they made a loss on their bets anyway.

Now, granted, personally if I had, say, a lot of Oracle stock, I'd probably be getting rid of that. But unless you conveniently already have a bunch of bubble stock, there's not really a remotely safe way to play.

Comment by nairboon 1 day ago

It really depends on what exactly you want to bet on and on what timeframe. More short term bet? Puts on the AI companies or an AI ETF. Do you assume that the rest of tech stays up even if AI pops? Then you could short some AI ETF and hedge with long QQQ. (=betting that the AI subset of Nasdaq will underperform relative to the Nasdaq.

Comment by ebiester 1 day ago

Just remember that the market can stay irrational longer than you can stay solvent.

Consider diversification in your portfolio. Maybe you divert a little more away from the US market, for example, which is heavily dependent on 7 stocks largely tied to AI.

Comment by Ekaros 22 hours ago

Also check how diversified the instruments you choose are. Sometimes they are lot less than one will think they are. Mainly due to those 7 stocks being big component in them also.

Comment by francisofascii 22 hours ago

ProShares UltraShort Technology (REW) You are betting against Nvidia, Microsoft, Apple, etc. Has a .95% expense ratio. https://www.proshares.com/our-etfs/leveraged-and-inverse/rew

Comment by eudamoniac 16 hours ago

Long dated puts on NVDA

Comment by electroly 1 day ago

Just knowing that the bubble will pop at some point in the future isn't enough to trade on. You'll get trounced if this is the only piece of information you have. To a first approximation, everybody knows the bubble will pop. The question is: when and how?

Comment by AaronAPU 22 hours ago

Not a single person “knows” the bubble will pop.

Many think it will.

Comment by g023 22 hours ago

I'm thinking that the bubble will be the vortex caused by an abundance of power that becomes freely available locally due to the AI datacenters moving to space.

Comment by OutOfHere 21 hours ago

Never take Wall Street at their word. They just want to take profit and buy back cheaply. It's not the bubble they're inventing; it's the pop.

Comment by 1 day ago

Comment by sleepyguy 23 hours ago

Listened to Tom Lee on a Prof G Podcast and he made a lot of sense about it all.

https://youtu.be/2J_IGuA-IdY?si=uTptx9R-HMhjD9LH&t=1200

Worth listening to the entire podcast but this is a snip where he speaks about AI valuations. Somewhere in that podcast he brings up the fact that Costco is trading at double future earnings to NVIDIA, let that sink in.....

Comment by baal80spam 20 hours ago

> Somewhere in that podcast he brings up the fact that Costco is trading at double future earnings to NVIDIA, let that sink in.....

English is not my first language, so let me make sure I understand: with this sentence you are suggesting that NVIDIA is undervalued, correct?

Comment by sleepyguy 16 hours ago

Well according to that metric, Costco has better growth prospects than NVIDIA.

In my opinion NVIDIA has better prospects at future growth than Costco, but the market hasn't priced it that way.

Comment by tug2024 23 hours ago

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