Is the AI Bubble About to Burst?

Summary

Earn Your Leisure Podcast Episode Summary: "Is the AI Bubble About to Burst?"

Release Date: January 29, 2025
Hosts: EYL Network

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Introduction

In this episode of the Earn Your Leisure podcast, hosts Rashad Bilal and Troy Millings delve into the current state of the artificial intelligence (AI) market, examining whether the burgeoning AI bubble is on the verge of bursting. The discussion navigates through the recent downturn in tech and chip stocks, the emergence of new AI competitors, and the broader implications for investors and the tech industry.

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The Current AI Market Landscape

Host 2 opens the conversation by highlighting the significant decline in major tech and chip stocks, citing specific examples:

“Nvidia down 15%. SMH down tremendous amount. ASML down TSM down tremendous amount.”
(03:48)

This sharp decline raises concerns about the sustainability of investments in AI-related companies. The hosts reference skeptics like Mike Novogratz, who have previously argued that AI is overhyped and overpriced, suggesting that the market might be correcting to realistic valuations.

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Emergence of Deep SEQ and Increased Competition

The discussion intensifies with the introduction of Deep SEQ, a Chinese app company that has rapidly ascended the app store rankings, offering AI functionalities purportedly superior to OpenAI’s at a fraction of the cost. Host 2 posits:

“Billions of dollars that's been poured into all of these companies, including open AI and it shakes the whole industry...”
(03:48)

This surge in competition, especially from more cost-effective solutions, challenges the dominance of established players like Nvidia. Host 3 adds depth to this argument by analyzing the improbability of achieving such advancements with limited investment:

“The mathematical probability of being able to get this compute out of $6 million is 0.00001 probability.”
(06:07)

The hosts discuss the potential overvaluation of AI companies and question whether the influx of venture capital is fueling an unsustainable bubble.

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Investor Sentiment and Market Reactions

The conversation shifts to investor sentiment and the implications of the current market downturn. Host 2 raises critical questions about the future trajectory of chip stocks:

“Is this a reset and it's going to be just a lot slower growth for these companies. Is it a good time to buy the companies?”
(03:48)

Host 3 responds by affirming confidence in leading companies despite the downturn:

“Nitrix? Their products are over hyped and overvalued... But Nvidia will be fine.”
(06:07)

The debate centers on whether the market is experiencing a temporary pullback or a fundamental reset that could permanently alter the landscape of the AI and tech industries.

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The Role of Energy Companies in AI Efficiency

Host 4 introduces the crucial link between AI advancements and energy efficiency:

“Can you create innovation without advanced hardware?... it still needs the GPUs.”
(09:08)

The discussion emphasizes that energy companies play a pivotal role in sustaining the growth of AI by providing the necessary infrastructure and efficiency improvements. The hosts argue that despite the downturn, energy sectors related to AI and data centers remain promising investment avenues.

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Stock Recommendations and Investment Strategies

The hosts provide actionable insights for investors contemplating their next moves in the fluctuating market:

• Host 2 asks about undervalued stocks outside the top tier, prompting Host 4 to share personal investment strategies:

  “I went shopping even... I went shop, I did grab some VST because again, I still think energy is going to be a story.”
  (14:11)

• Host 3 emphasizes a cautious yet opportunistic approach:

  “A lot of you need to stop chasing, chasing the next new thing week to week.”
  (18:03)

Key stock recommendations include:

• Nvidia
• Meta
• AMD
• Tesla
• TSM (Taiwan Semiconductor Manufacturing Company)
• VST
• Arista Networks (ANET)
• Palo Alto Networks

The hosts advocate for strategic buying during market dips, suggesting that these companies possess strong fundamentals poised for long-term growth despite short-term volatility.

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Conclusion and Final Thoughts

As the episode wraps up, Host 4 underscores the importance of monitoring capital expenditures and market allocations:

“By the time we see the report, it's already been spent... We gotta really monitor this.”
(17:22)

The hosts collectively stress the necessity for investors to stay informed and adaptable in the face of rapid technological advancements and market shifts. They acknowledge the complexity of the AI market but maintain a cautiously optimistic outlook on its future.

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Key Takeaways

• Market Volatility: Significant declines in major tech and chip stocks signal potential overvaluation and market correction.
• Emerging Competition: New players like Deep SEQ introduce competitive pressures, challenging established AI and chip companies.
• Energy Sector's Role: Energy efficiency remains integral to sustaining AI growth, presenting viable investment opportunities.
• Investment Strategies: Focus on fundamentally strong companies, seize buying opportunities during market downturns, and avoid chasing fleeting trends.
• Long-Term Outlook: Despite current challenges, leading AI and tech companies are expected to maintain their market positions and continue growth trajectories.

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This episode provides a comprehensive analysis of the current AI market dynamics, offering valuable insights for investors navigating the complexities of tech and chip stocks amidst evolving competition and economic factors.

Transcript

[Host 1]

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[Host 2]

Main topic of today with tech stocks crashed, specifically chip stocks. Nvidia down 15%. SMH down tremendous amount. ASML down TSM down tremendous amount. So in a very short period of time, and there's been a lot of people that have said that AI bubble would end at some point, Mike Novogratz being one of them, saying that not artificial intelligence wasn't real, but it was overpriced, overhyped, and it was going to be a catalyst at some point in time to kind of bring things back to the level of reality. So this deep SEQ thing comes out and shoots to the apps top of the app store overnight. Pretty much a Chinese app company that, yeah, they said achieved workable function at a very high level, some say even better than open AI for $6 million, a fraction of the cost of the building. Billions of dollars that's been poured into all of these companies, including open AI and it shakes the whole industry and things make people think that yeah, maybe not that Nvidia is not valuable company, but maybe their, their products are over hyped and overvalued as far as how much money is being poured into the space. And then for other companies that have not even done anything yet, but still have been able to raise a bunch of money from venture capital. So all of these chip stocks are down drastically. So like I said, even if they're forging the numbers a little bit or it's not, it definitely speaks to some level of pessimism that people have been talking about, talk about this for a while as far as the AI bubble for at least 18 months. So I don't think that these companies just disappear overnight. But the question that everybody has is okay, is this a sign of what's to come? Is this now this is a reset and it's going to be just a lot slower growth for these companies. Is it a good time to buy the companies? That's the next question as well.

[Host 3]

Yes. Shameless plug. Go to Ian invest.com if you want to know where to get into the market, where to get out. I put this price in I think two weeks ago for Nvidia. As far as it being a reset, the top two or three players in the space will remain that they'll be dominant. But I think and I don't want to be flippant about the deep seek allegation but I want to be clear, it's almost okay if you run it through their model. Can't wait for the mastermind because I'm going to show you some of the prompts that I use for investing. The mathematical probability of being able to get this compute out of $6 million is 0.00001 probability. So not me, that's their own tech. When I ran my model and based on capex spend of other companies now is their AI bubble. I think there's a lot of companies that don't have any real AI that have acted like they do and they're going to fall apart. So yes, but will Nvidia be fine? Yes. Meta be fine? Yes. Will Oracle be fine? Yes. Well AMD be fine. Yes. And a lot of people who kept calling for this AI bubble are people who missed out on buying Nvidia the same dirty Mac and Elon did over that Stargate project what got stolen from Microsoft and he's mad because he didn't get part of that spend. So in order for deep seat to be great, let's just go through some of them and say that they are better. They got to be open AI0101 mini Gemini Gemini 1.5 Claude Nova Pro Llama 3 and 3.3 GPT 4.0 GPT4 0 mini It's a lot of competition. So is the AI bubble overhyped? I think there are too many companies who attach themselves to be AI facing and they weren't. But Nvidia no. And also too it's a conversation about interest rates that people are afraid of and I think this just took the leadership cycle. And for everyone who said you found the next quant company, why are you afraid of Deep Seek? Because Quantum is superior. If you found the quant company that are going to rule the next 20 years, why are you asking me if you should sell off your quant position because of Deep Seek? It makes no sense.

[Host 4]

Yeah, I think the question that they. Can you create innovation without advanced hardware? That's, that's the question, right? Like is it, is it possible? And so when we talk about advanced hardware, you're talking about the Nvidias, you're talking about the Broadcoms, you're Talking about the AMDs, you're talking about the micro, like that's advanced hardware. Now is Nvidia overhyped? I, I can't use the word overhyped because they're still going to be necessary even for deepseek. If you look at how it's built, it still needs the GPUs. Does it need as many GPUs is the real question. But you're still gonna need them. And so that, that's the first thing. And then it's is this a war to who's first? Right?

[Host 3]

Absolutely.

[Host 4]

So like if China is saying like hey, we have this company and we can do it for this efficiency, then when you try to use it today, why can't we use it if it's a global thing, right? So like that, there's that part of it and then it talks about efficiency from our standpoint. Like I said, think about the amount of money that has been allocated. Last week we talked about 500 billion. That was for AI expansion, data centers and everything adjacent to it. Energy. We saw Vista go down today. We saw VRT move down today. We saw GEV move down today. All these are energy components, Broadcom connectivity, all these things pull down because of this quote unquote efficiency. The other thing is this man, people want new buy in points, right? Like the market has to fall so people can buy in.

[Host 3]

Absolutely.

[Host 4]

If Deep Seek was created In December of 2023, if it was this efficient, is it coincidental that it is? This announcement is happening after all those. Everybody said that they're going to have their capex and it's the same week of these max 7 earnings. Meta's reporting this week, Apple's reporting this week, Microsoft's reporting this week. In two weeks Nvidia will be report big companies reporting with their numbers and what they've been spending coincidental, I don't know.

[Host 3]

So and the real conversation is were they able to get some of those GPUs in China that they were not supposed to get in for the infrastructure. Now that's the conversation that needs to be had.

[Host 4]

Oh, during the ban.

[Host 2]

Well, the thing about it is that you never buy stocks at all time highs facts so that stocks always pull back for one reason or another. Yeah, but there's a difference between a pullback and a reset. Because a reset, you can actually just reset the whole landscape and it could change potentially forever as opposed to a pullback which would just pull back for the second, then just go back to things as normal. So we'll, the question is, will things be as normal or will it be a reset in the space? Like I said, I don't think anybody doesn't think Nvidia is not going to be here anymore. But will it be a reset in the space where chip stocks will not be leading like they were.

[Host 3]

And in the cycle of America, what could replace it? It's a great question, but what will replace it? I think Nvidia is here to stay. MD I think is going to have a monster year. But what when people talk sector rotation and some people, well, banking is doing better. I'm like, you're not going to go buy bank of America. I mean, shout out to Brian Moynihan, amazing person, you're not buying bank of America over amd. Like AMD is neck and neck with Apple in terms of returns over the last five years. It's not talked about because of what sector they're in. So would that be a reset? I've been really big on, I don't think the energy companies are going to do what they did last year. So Nvidia would do well. MD do well. Meta would do well as a result, Tesla will do well. They have a lot of compute over there as well. But everyone just slapping AI on their stock to make the value go up. Yeah, that's over with.

[Host 4]

I, I, I'm on the record saying I believe energy will do well. Will it have 50, 60 gains? Nobody can call that will it do well? Yeah. From the standpoint of what we're talking about efficiency. How do we make energy more efficient if we know that it's going to cost us this amount to have this type of compute and not just in the GPU space, but if you're even talking about in the crypto space as well, that still requires energy to run at its highest and most efficient capacity. Sure. So even like I said when I talked about this data center revolution, they originally would house to and they were mining Bitcoin. Right. When you saw how much energy it took, we have to create more efficient ways to have connectivity, to have coolant, all that is inside of it. Now, obviously, with AI being at the forefront. Yeah. It's a dual purpose in a sense where, like, hey, we need it for this too. So I still think energy is going to be. Be a story this year. So.

[Host 2]

Okay, so let's speak even a little bit clearer for the people. What stocks do you think would be good buys?

[Host 3]

Nvidia Meta.

[Host 2]

All right, let's. All right, let's. Let's.

[Host 4]

Let's.

[Host 2]

All right, let's go a little deep down. Amd, I'm a. I'm, you know, I'm. I'm the advocate for the, for the, for the people. And I know. I know what the people will say. So what's the stocks that are not in the mag seven? The. I. Look, Troy, because you've championed a lot of these other companies, so. Yeah, these companies that are not in the mag 7. Are you. Are you still confident about these companies? Are you starting to feel a little bit nervous?

[Host 4]

No, I'm still confident.

[Host 2]

All right, which. Which of these companies would you be enthusiastic about? Well, now, tomorrow morning, buying, because all of them are down. Like, we got.

[Host 4]

I'm still in tsm. That's not a maximum.

[Host 2]

No, no, I'm talking about the VSTs.

[Host 4]

Well, you said Maxella.

[Host 2]

Okay, the. The lower. The lower ranking.

[Host 4]

Yeah, I actually mu. Yeah, so I went shopping even. Right. Like, so when again, it's one of these mindset things, right? We see a pullback like that. I woke up, I saw NASDAQ was down angel points. I'm like, all right, we. We already have some. Some money in reserves. Now let's see if we can get some of these. These price points that we were saying prior to. And so when I saw VST get down to a number, I was like, oh, it ran up to 199 last week. I'm like, damn it. It might have outran me. I saw it go back down to 148. I'm like, all right, well, it's back in the range where I wanted to get it at. So I went shop, I did grab some vst because again, I still think energy is going to be a story. We spoke about this on the Thursday call about a company that, I mean, we. If we, if we look at his chart over the past six months and we look about the story in AI, it pulled back to a point and I'm like, all right, down at 110. Let me, let me go grab. Let me go Grab some, some contracts down there. And that is Arista Networks A N E T And so I, I think the story stays the same for at least 20, 25 for sure. But again, when we, when we do these contracts, I'm going, you know, out for a lot further with maximum potential growth. Right.

[Host 2]

And so, so you're still confident on your companies?

[Host 4]

I'm still in. I actually went shopping today. I'll be honest with you. I went shopping.

[Host 2]

And what'd you buy?

[Host 4]

I'll show you in a second. You want to see it? So I bought, I bought more. I bought VST because it got to a point. I bought vrt. Right. Again, energy as well and talking about cooling for, for the data centers. So I'm still in the data center revolution. I got more contracts on TSM because that's pulled back. I already had the 105 that I exercised and I talked about that on the class. I had a 180. We, we went down and got some more down at the 195 range. And I got one more, I don't even know if it got full. I'll chat, I'll throw you in when I open up my brokerage. But I definitely got those three for sure. And then I had one that was just pending.

[Host 3]

And I'll play devil's advocate to my own position. The threat the deep sea does pose is open source. But what happens when Trump knocks on somebody's door, maybe Elon's, and say, hey, make Grok AI open source so we don't have to deal with this threat in China. Then what? Deep seek. You're screwed. I'll wait till the second hour to curse. Thank you to the families and the parents to watch with your kids. Love you.

[Host 4]

My fourth one was Palo Alto. I bought more.

[Host 2]

But they do have an advantage of, of education. They have smart people a thousand percent and they have a unified government. They have, they have a lot of. So.

[Host 3]

You can't just count you, right?

[Host 2]

Can't count them out.

[Host 4]

No, I'm not counting out. I, I because it's either a couple things are going to happen, right? Like either America, American company is going to say, hey, they're onto something and we've got this wrong and they have to cut back spending, right? But then that spending is going where, right? These are the Capex numbers already for 2025. So this money is already been allocated out, right? By the time we see it, it's already been spent, right? So like when Nvidia reports Meta has already spent the money with Them, right? Like Microsoft has already spent the money with them by the time we see the report. So what does that look like for 2026? We gotta, we gotta really monitor this.

[Host 2]

See.

[Host 3]

And you know who didn't have all this? Capex and AI Manzana. My favorite investment move is when people get to pitching me things that I'll need. Let me wait three months to six months to see if I still want it. Apple is on fire today as a result. And, and the thing is too, and I keep stressing this, it's not the sexy media answer. A lot of you needs to stop chasing, chasing the next new thing week to week. I just thought y'all loves Quantum and that collection of stocks. Sorry to the parent.

[Host 4]

Sorry to the parent.

[Host 3]

Like yo, what do we like?

[Host 4]

Yeah, but even Apple pulled back right?

[Host 1]

Like this is what I'm saying.

[Host 4]

Like we saw Apple run up to 253, we spoke about it. We're like where's the innovation? It pulls back down to 225 and people like well I don't know. Yeah, I don't know but I mean it's a big week for Apple for the long term. Yeah, obviously long term vision you're looking at this as a great opportunity for a buy point. But it's a, this is a big week for Apple. We'll see what happens.

[Host 3]

The only thing in a SWOT analysis that we have to remember, it's that their own leadership are keeping. They have some amazing companies that are publicly traded and they've kept them quiet the last three years. I don't think they're gonna let this one flourish.

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