16 ms·

Money bubble

224 points by headalgorithm 3y ago

INGELRII 3y ago
Aswath Damodaran's Nvidia analsysis: Assuming 32% CAGR rate of over 5 years with 40% target operating margin at the end of period Nvidia is now 40% overvalued. https://aswathdamodaran.blogspot.com/2024/02/the-seven-samurai-how-big-tech-rescued.html https://aswathdamodaran.blogspot.com/2024/02/the-seven-samur...
- lootsauce 3y ago
  Logical yet, how overvalued did Tesla get?
  - Swizec 3y ago
    In a world where seed and A stage AI startups are getting $100mm rounds and half that money's going to NVIDIA ... eh it's probably not too overvalued. I think there's more oomph left in the bubble.
    - deleted 3y ago
      [deleted]
    - bombcar 3y ago
      When the valuation is something like "it looks like it's assuming they'll continue to sell $X billion a year" it can be reasonablish. When the valuation requires "they will continue to grow sales X% a year" is when it quickly becomes impossible, and for a much smaller X than you might realize.
    - __loam 3y ago
      Even if you do think AI is a bubble, Nvidia's capacity is completely booked for a few years or so if I'm not mistaken. And that's with huge margins.
  - not2b 3y ago
    As the old saying goes, the market can stay irrational longer than you can stay liquid. So shorting a clearly overvalued stock can be a dangerous move.
    - AlbertCory 3y ago
      Oops. We posted that at the same time. Short Nvidia only if you hedge with some call options. Or other financial instrument that mitigates your losses.
  - AlbertCory 3y ago
    the market can stay irrational longer than you can stay solvent.
- airstrike 3y ago
  > Last summer, when I valued Nvidia in this post, I found it over valued at a price of $450, and sold half my holdings, choosing to hold the other half. Now that the price has hit $680, I plan to repeat that process, and sell half of my remaining holdings. Well, it looks like he lost a lot of money
  - msoad 3y ago
    He bought it before me at least, so he *made* money. Doesn't matter if didn't predicted the top. He saw a stock that he thought will increase in value, bought some and sold at a higher price. That's what it matters
  - Ekaros 3y ago
    So if someone buys a stock and then that stocks goes bankrupt. By that logic they lost no money... Taking money off the table when it is enough for you is the way you guarantee that you make any money...
    - airstrike 3y ago
      yeah, but he could have waited a little bit to see signs of a slowdown instead of taking such a radical contrarian view and leaving ~80% upside on the table. better to risk it going down from $450 to $400 before selling than to miss out on the ride to $800
  - smeeth 3y ago
    Nope. Failure to maximize returns is not losing money.
    - airstrike 3y ago
      There's a big difference between failing to maximize returns and missing out on an 80-90% upside (so far). Selling at $450 was a pretty bad call
  - OtherShrezzing 3y ago
    I hope in both instances the author at least held out the extra couple of weeks until earnings day.
- bloodyplonker22 3y ago
  Aswath Damodaran looks at valuations with a very one-dimensional lens because he is not an innovator, engineer, or even a business person. Ever since Amazon was in its early days, he has said that Amazon was overvalued and he has always been wrong because Amazon has always found new verticals to build and create more value with.
  - INGELRII 3y ago
    Damodaran makes detailed analysis with assumptions in the open. Put your numbers to the Exel sheet and calculate valuations using your own numbers. >Ever since Amazon was in its early days, he has said that Amazon was overvalued and he has always been wrong because Amazon has always found new verticals to build and create more value with. Amazon has been overvalued multiple times. Amazon stock had negative return 10 years between 1999 - 2009.
    - lotsofpulp 3y ago
      https://dqydj.com/stock-return-calculator/ https://dqydj.com/stock-return-calculator/ Jan 5, 1999 to Dec 28, 2009, AMZN had an 8.9% annual return. Jan 5, 1999 to Dec 28, 2008 was -0.52% annual return. Jan 5, 2000 to Dec 28, 2009 was 6.88% annual return. But why give a crap about returns during a specific 10 year period? Almost nobody is buying something today to liquidate all of it at a single point in time in the future.
    - woobar 3y ago
      > Amazon stock had negative return 10 years between 1999 - 2009. It did not. You will have to cherry pick very specific days in this time frame (top of the dot com bubble and bottom of the GFC) to get negative returns. But how about 1998-2008 or 2000-2010? Here is how $10K invested in AMZN performed in 10 years [1]: 1998 - 2008 $102,134 1999 - 2009 $25,124 2000 - 2010 $23,625 2001 - 2011 $111,229 [1] https://www.portfoliovisualizer.com/backtest-portfolio?s=y&sl=28FqLdhmApVJzlaxLM4wFa https://www.portfoliovisualizer.com/backtest-portfolio?s=y&s...
  - xetplan 3y ago
    This is seriously might be the worst post I have ever read online. To say it is clueless would be too nice.
bloqs 3y ago
Younger people who may not know: Tim Bray was one of the creators of XML. Also a nice guy on Twitter (at least he was a few years ago) he's probably active here too.
- timeagain 3y ago
  His blog posts are one of the main things that keep me coming back here. Insightful, and he often is able to put into words things about the industry that I can only feel in the periphery of my heart.
- 4ndrewl 3y ago
  Tim Bray is still a nice guy on Mastodon https://mastodon.me.uk/@timbray@cosocial.ca https://mastodon.me.uk/@timbray@cosocial.ca [Edited - added Tim's name to help future searchers]
  - deleted 3y ago
    [deleted]
- throw0101c 3y ago
  > Younger people who may not know: Tim Bray was one of the creators of XML. Also editor of the JSON RFCs: * https://en.wikipedia.org/wiki/Tim_Bray#JSON https://en.wikipedia.org/wiki/Tim_Bray#JSON * https://datatracker.ietf.org/person/tbray@textuality.com https://datatracker.ietf.org/person/tbray@textuality.com
rglover 3y ago
> I kind of flipped out, and was motivated to finish this blog piece, when I saw this: “UK government wants to use AI to cut civil service jobs: Yes, you read that right.” The idea — to have citizen input processed and responded to by an LLM — is hideously toxic and broken; and usefully reveals the kind of thinking that makes morally crippled leaders all across our system love this technology. And this will not just be in government, it will be everywhere. The scariest part is that as people start to spend less time developing a skill set, and instead deferring to AI answers, you will cross a point where this problem can't be fixed (because nobody has the skills to fix it and the AI is trained on the outputs of previous generations of humans). For the "olds" who already have a skillset, this will be incredibly lucrative (as those who can afford to pay to fix it will handsomely). But the potential for this to—at best—plateau humanity and at worst, make it regress, is significant. The dark humor in all this: we thought AI would get us the Terminator, but instead it's going to get us rapid degeneration. --- Edit: an addendum, the overall point I'm making is well encapsulated in this talk https://www.youtube.com/watch?v=ZSRHeXYDLko https://www.youtube.com/watch?v=ZSRHeXYDLko
- ildjarn 3y ago
  The future was predicted in The Machine Stops and Mockingbird
  - dgfitz 3y ago
    I'd argue more of a mix of Brave New World, 1984, and Atlas Shrugged
- mritchie712 3y ago
  that'd be WALL-E
  - temp0826 3y ago
    I was thinking Idiocracy. Time to use AI to generate enough blogspam about the benefits of watering plants with gatorade to "poison the well" of datasets used for future training.
debacle 3y ago
Is there a resource I can use for understanding how "dumb money" impacts the markets?
- lbotos 3y ago
  lots of articles talking about "index investing/passive investing market impacts" should get you what you are looking for.
dado3212 3y ago
Archive while this is down - https://web.archive.org/web/20240229191137/https://www.tbray.org/ongoing/When/202x/2024/02/25/Money-AI-Bubble https://web.archive.org/web/20240229191137/https://www.tbray...
- baobabKoodaa 3y ago
  PSA: publish your static blog content on a CDN, not on a $5 VPS
  - sodality2 3y ago
    If it's static it doesn't (shouldn't) matter. I had over a million hits on my $3/mo VPS and it handled the load perfectly fine.
    - baobabKoodaa 3y ago
      How many times do we have to see a blog post hugged to death by HN before you will change your mind? We literally saw it happen with OP just now.
      - sodality2 3y ago
        My point is that it's typically a design choice when choosing something like Wordpress or a dynamic site, versus a static HTML file that's under 100kb. Though in this case the site's resources are under 400KB, so I can't really be sure.
        baobabKoodaa 3y ago
        Nobody's saying a static site has to be under 100kb or whatever. You can have a static site that has 100Mb+ of assets. You can put whatever design you want on a static site, it doesn't have to be minimalist and without images.
- xenonite 3y ago
  Over unencrypted HTTP, the server responds well: http://www.tbray.org/ongoing/When/202x/2024/02/25/Money-AI-Bubble http://www.tbray.org/ongoing/When/202x/2024/02/25/Money-AI-B...
elijahbenizzy 3y ago
There's an argument that the AI tech bubble is just a continuation from the value-add of automating everything and the productivity/GDP-increase that causes. It is just that investors are so skittish that they'll only let the floodgates open if its "sexy", so AI comes in and restarts the money machine.
- bombcar 3y ago
  What else are investors going to do, sell stocks and buy bonds?
- __loam 3y ago
  Is that why profitable companies like Google are laying off thousands of workers?
  - elijahbenizzy 3y ago
    While simultaneously achieving record revenue/profit?
PheonixPharts 3y ago
> Things have been too good for too long in InvestorWorld That's not by accident and it's been at the expense of non-investor world for a long time. What we're seeing is finance capitalism suck surplus value from every piece of the Earth it can. We're still burning more fossil fuels than ever before [0] despite the now visible risk of climate catastrophe. I believe we're likely to see investors continue to become irrationally wealthy while increasing larger and larger pools of people a driven into ever increasing situations of hardship. I see no signs of the madness stopping until both human and planetary resources start to buckle under the pressure and refuse to give yields they once did. The article repeatedly mentions crypto as though it were an obvious bubble, but bitcoin is near record highs and even Sam Altman's bizarre world coin is at extreme record highs, COIN is up 200% in the past year. The bubble won't "burst", it's just that increasingly less people will be invited in. 0. https://ourworldindata.org/fossil-fuels https://ourworldindata.org/fossil-fuels
- netsharc 3y ago
  Yeah, can't imagine the gigatons of CO2 needed to produce CPU/GPU chips (and other hardware) as well as to run these machines, and for what, so some people have to work less generating a document or applying effects to a movie, or to answer a customer's FAQ, or so you can concentrate less while driving... It really is like that paperclip game where at the beginning you can click once to get 1 paperclip and at the end you're using the resources of a galaxy to generate gazillion paperclips, except on this planet the number we're all irrationally obsessed with wanting to make go up is our bank account total.
- TapWaterBandit 3y ago
  At this point crypto clearly isn't a bubble. And why would it be? Cryptographically secured money has some advantages over fiat money. This doesn't mean fiat will disappear and all crypto will succeed. But most fiat currencies haven't really "succeeded" either. Money is a very "efficient" market in this sense because each individual can decide do you want to hold currency X or currency Y or currency Z? And there are pros and cons to each that lead to price discovery between currencies. And I think as time goes on it is becoming more and more apparent that many central banks do not take the management of their countries currency seriously and so people choose alternatives. This is what well-functioning markets look like. Consumer choice and incentives.
mattgreenrocks 3y ago
Absent GenAI, do the BigTechs of the world have enough growth going on elsewhere to appease Wall St volcano gods sufficiently? They all seem to be hyping GenAI a ridiculous amount, prompting this question. And it makes sense for them to ride the hype train and get something out of it. But it also makes me wonder if that only makes the eventual drop even larger.
marcinzm 3y ago
> I kind of flipped out, and was motivated to finish this blog piece, when I saw this: “UK government wants to use AI to cut civil service jobs: Yes, you read that right.” The idea — to have citizen input processed and responded to by an LLM — is hideously toxic and broken; and usefully reveals the kind of thinking that makes morally crippled leaders all across our system love this technology. As someone who actually had to deal with the government recently in the US I disagree. It was impossible to reach a human or otherwise get an answer to my likely not too unusual question. If they had an even half decent LLM then I'd have probably had my answer and action items for me to do within 30 seconds. Instead I've wasted days in various attempts to get some type of answer. I recently needed to fix some issues in something I filled with the government. Email support used to exist but probably cut due to budgets. Chat support used to exist but probably cut due to budgets. Phone support has no waiting queue and require 1 minute of entering numbers to hit the disconnect point (due to not available agents). Physical mail seems an option but I don't know the format or address. Etc.
- bombcar 3y ago
  The only thing I've seen that even gets close to working is physically going to the office in person but hell finding what or where that is. And you can't even do that with Social Security anymore. If it is something you could be legally liable for, I'd at least send a certified letter to whatever address you can find, so that if it becomes a problem later you can at least show you tried.
  - marcinzm 3y ago
    > The only thing I've seen that even gets close to working is physically going to the office in person but hell finding what or where that is. They do try to discourage it sometimes. The local passport office has a sign on the door that says "by appointment only." The first thing you hear upon walking in is "if you don't have an appointment get into line B." If you have an urgent mater they will take care of it without an appointment. I wonder how many people turned around upon seeing that sign on the door. Dark patterns left and right to make it harder to get anywhere.
throw0101c 3y ago
Just because some technology may end up changing the world, it does not necessarily mean that it is a good investment: * https://en.wikipedia.org/wiki/Technological_Revolutions_and_Financial_Capital https://en.wikipedia.org/wiki/Technological_Revolutions_and_... * Via Ben Felix: https://www.pwlcapital.com/investing-technological-revolutions/ https://www.pwlcapital.com/investing-technological-revolutio...
aejm 3y ago
> I dunno if anyone will build an AGI in my lifetime, but I am confident that the task would remain beyond reach without the functions offered by today’s generative models. This. LLMs are not the path to AGI. At best they’re one of many ingredients.
IanCal 3y ago
> I kind of flipped out, and was motivated to finish this blog piece, when I saw this: “UK government wants to use AI to cut civil service jobs: Yes, you read that right.” The idea — to have citizen input processed and responded to by an LLM — That's not what the article says, it's about processing responses not responding to people. I don't think there's anything about responding to citizens. And it also doesn't say LLM it says AI.
- frereubu 3y ago
  He's talking about this article: https://www.engadget.com/uk-government-wants-to-use-ai-to-cut-civil-service-jobs-140031159.html https://www.engadget.com/uk-government-wants-to-use-ai-to-cu...
  - IanCal 3y ago
    I know. It doesn't talk about responding to citizens as far as I can tell, can you quote where it does?
- sgt101 3y ago
  The UK gov is probably talking about using embeddings to respond to FOI requests. 1000000 documents -> 1000000000 embeddings Citizen question -> GPT normalised question -> 'embeddings match 'embeddings <-> embeddings recover document fragments with matched embeddings use GPT to create answer from document fragments The question is how successfully this process creates the answers required. Who knows? But, I would not be surprised if it worked pretty well and it might boost productivity to the point where there's a massive saving to be had. Maybe - but that's the fun!
  - IanCal 3y ago
    I doubt it. The article mentions generating answers based on sources like Hansard, and dealing with large numbers of consultation responses. Frankly it's shocking they haven't done any ai stuff with consultation responses, lots of freeform text is where you usually want to start doing clustering and analysis.
ahnick 3y ago
Tim writes a post about a "Money Bubble". There is now an alternative form of money that anyone can buy through their 401k if you believe there is a money bubble. He dismisses?(or doesn't even consider it?) since it uses a blockchain, because that's a dirty word in the cloud/SaaS tech circles. sigh
- iydhjdfjtg 3y ago
  Money buys things. Cryptocurrency does not. Some may use it as a store of value but it’s not money any more than gold or silver is.
  - Etheryte 3y ago
    I'm not sure if this argument makes sense today. You can buy many things using cryptocurrency, from food to cars to houses.
    - cheema33 3y ago
      Other than a few token places that you might see on the news, crypto is not really used as money. And never will be. Transaction fees.
      - Etheryte 3y ago
        This is not really true in my experience, crypto is more than just Bitcoin. There are a number of options that do not have high transaction fees and that are use fairly often to trade goods.
andsoitis 3y ago
> but there are just way more ways for things to go wrong than right in the immediate future That is always the case so I wouldn’t over index on that.
nkohari 3y ago
I think most people (including many working in AI!) would agree that AI is currently at the peak of the hype cycle and there will be a bloodletting at some point. But I don't really understand how AI being hyped, and NVIDIA's stock being overvalued by extension, could result in a 2008-like market crash.
- Ekaros 3y ago
  Tech stocks are responsible for most of the gains in stock market in past year. Nvidia is alone responsible for 28%... If that just doesn't seem unsustainable I don't think what is... AI is not pulling up traditional firms just a very small number of tech stocks. So with how much is concentrated on a few tech stocks, downturn in tech could lead to significant correction.
  - VirusNewbie 3y ago
    >Tech stocks are responsible for most of the gains in stock market in past year. Ok, but none of the major tech companies other than Nvidia are AI companies. Sure, some of the pop to MSFT's stock is probably because of the OpenAI deal, AWS, GCP, and Azure is riding some of the wave of new AI investment money coming in, but none of them are first and foremost AI companies selling AI.
  - nkohari 3y ago
    A stock market correction, sure. The market ebbs and flows, though. What happened in 2008 was a catastrophe that caused a multiyear worldwide recession. It's called the Global Financial Crisis for a reason.
hn_throwaway_99 3y ago
While I agreed with a lot in this post, I'm also pretty wary of the underlying, unstated idea that average investors can avoid bubbles popping while also somehow taking advantage when things go up - that is, he doesn't really say it in so many words, but he's essentially talking about timing the market. I started my tech career around the turn of the century, and made the mistake of putting a ton of money (at least for me, at the time) into Global Crossing. My thought was that while there were all these "fluffy" doomed dot coms at the time, Global Crossing had billions in real, physical infrastructure they built. Obviously I didn't quite understand debt at the time, never mind the actual fraud that Global Crossing committed (I remember thinking "Wow, stocks really can go to zero and never come back.") Sure, you could argue I made every newbie investor mistake in the book, but the worse consequence for me was that it "spooked" me early in my investing career, such that I became very reticent to want to invest in things when I felt they were overvalued. E.g. I was one of those people who thought there was a giant tech bubble when Facebook bought Instagram for a billion dollars - in 2012... So sure, you may think I'm an idiot, but I can quite guarantee I was far from alone. It was only at the point where I really, truly believed "I'm definitely not smarter than anyone else in the market" (and hardly anyone is) that I just put my money in index funds, did regular rebalancing, and otherwise forgot about it. We may be in an AI bubble, we may not, but I've seen way too many "vastly overvalued" companies continue to be "vastly overvalued" for over a decade (and then only briefly coming down before shooting back up again) to think that Tim Bray has any special insight here.
- dottjt 3y ago
  I had the exact same experience with Bitcoin back around 2014. Only now just getting back into investing as I realise it's an important thing to do for wealth preservation. I suppose it's not uncommon for people to have this kind of experience, so I'm just glad I had it young.
  - 2024throwaway 3y ago
    Bitcoin != investing. I say this as someone who lost money in the 12DailyPro / eGold fiasco of 2005/2006. (read: I am very, very dumb.)
glitchc 3y ago
> Produce plausible output That's basically art. So AI's only really good at producing art. So we're safe... but now I feel bad for the artists.
- frereubu 3y ago
  Depends on your audience. One of the things that stuck in my mind from my sculpture degree was a tutor's contention that plenty of (visual) artists produce "things that look like art" but aren't worthy of the name. Subjective, yes, but I knew exactly what she meant. The current generation of AI by definition only produces entirely derivative works. All artists are influenced to some extent by their visual history, whether they like it or not, but there are leaps that some of them make which I don't think anything which works solely on previously-generated work could make, and those tend to be the most interesting. (Although I'd agree that artists who really lean into derivation, like Andy Warhol or Hans Haacke, are also interesting).
pyrrhotech 3y ago
It's obvious that bubbles exist in retrospect, but determining whether current growth and valuations are sustainable in the present is incredibly difficult. As another poster mentioned, we are essentially talking about market timing here. Most investors have been conditioned by many popular talking heads to immediately dismiss the idea of successful market timing - and for the most part, the talking heads are correct. For the average investor, successful market timing is nearly impossible. However, we have many counter-examples of successful market timers over the long term. James Simons' Medallion fund has returned 50%+ CAGR over a multi-decade period and stomping the market, creating many centimillionaires and billionaires in the process. I set out thinking, what's so different about Simons and his crew at RenTec? Why is it so difficult for their success to be replicated? Not one to easily back down from a challenge, I began working on my own algorithms to successfully hedge against market downturns and provide superior absolute and risk-adjusted returns compared to the S&P 500. While I haven't yet seen Simons-level success in live trading, since launching Grizzly Bulls (https://grizzlybulls.com https://grizzlybulls.com) in January 2022, 6 of our 7 models have outperformed the market on an unleveraged basis: SPX (benchmark): +7% VIX-TA-Macro-MP Extreme: +39.98% VIX-TA-Macro Advanced: +34.38% VIX-TA Advanced: +12.92% VIX Advanced: +9.91% Vix Basic: +5.76% TA - Mean Reversion: +15.46% TA - Trend: +12.97% Of course two years of outperformance also doesn't yet stand the test of time of Simons' remarkable run, but I'm confident that we've discovered alpha here.
- SirLJ 3y ago
  This is great, I am also running my own AI investment robots and this is the future and I believe you can absolutely beat the market and even thinking to use similar approach to other structured data sets and create a startup around the idea... “If you don't find a way to make money while you sleep, you will work until you die.” ― Warren Buffett
- fmx 3y ago
  > since launching Grizzly Bulls (https://grizzlybulls.com https://grizzlybulls.com) in January 2022, 6 of our 7 models have outperformed the market on an unleveraged basis: > VIX-TA-Macro Advanced: +34.38% I'm not sure how to reconcile that with the numbers shown on https://grizzlybulls.com/models/vix-ta-macro-advanced https://grizzlybulls.com/models/vix-ta-macro-advanced When 2022 is selected as the starting year, it shows an increase from 16,911,242 to 17,881,510 which is an increase of 5.7% in 26 months.
zooq_ai 3y ago
If Tim Bray weren't a renowned progressive / socialist, I would have listened to him about Bubbles and Investing. But he comes from a very liberal skeptical engineer and is always wrong. (note the use of right-wing used for Tax cuts. is Tax breaks that extreme of a position? It is for socialists / progressives). Anyway, here's to think about AI. Intelligence is the most precious commodity of all of humanity. Intelligence captured in bits is easily distributed and scaled. We pay $1000 / hour for intelligent agents and it's easy to see, how a super intelligent system can capture 50% margins on that. (Volume of Data and Proprietary hooks will make switching difficult). But, wait, there is more. Intelligence begets more Intelligence. Every artifact an AI produces, we need more AI to maintain, enhance, distribute it. So, for the first time we have an entity whose demand creates it's own demand spiraling into a vicious positive growth rate. All this means is our AI demand may at 0.000001% of what the demand in 20 years would look like, which makes AI enablers incredibly cheap. I could be wrong, but to dismiss the possibility is exactly what's wrong with today's "skeptical liberal (with a decel mindset) engineer's" framework / vision. Build your own mental model
neilk 3y ago
I mostly agree but I have a few quibbles with some arguments. For instance, Bray considers the adage "The CIO is the last to know". From the 90s until now, developers have always snuck new technology in without management approval. You put Apache on a forgotten Linux box in the corner because it's easy and fun, and a few months later the whole company relies on it. Developers are not rushing to deploy skunkworks generative AI solutions, so, the argument goes, probably generative AI isn't that good. There's a couple of problems with this. 1. Not everything that is good can be deployed skunkworks-style. It might be that AI is only really good with incredibly high up-front costs and extremely specialized developers. Like launching a satellite. You can't do it yourself with stuff you have lying around, and even if you had the money to do it you probably don't have the expertise to do it safely. But it's still extremely valuable! 2. Sometimes we are using this technology to hack up solutions to personal problems! I had a video which I wanted my hearing-impaired father to watch. I could have paid a human or AI-powered service to generate subtitles, but I found that I could do it myself with OpenAI's Whisper, on an old laptop, and then munging text files together in the usual way. I was a little shocked that this worked offline. I could have done it on a plane. This absolutely fits into a hacker workflow.
- wrs 3y ago
  Yeah, it’s like everyone forgot about Whisper because of ChatGPT. A friend had 200 hours of audio of a retiring expert naturalist’s park tours and wanted to publish them so the knowledge wouldn’t be lost. I turned them it all into incredibly accurate text files overnight using just my M1 laptop, for free. That’s crazy.
  - sgt101 3y ago
    Also effective object recognition & OCR. I got asked about onboarding someone to a fund online and it occurred to me to check out current services before responding - 20 seconds with google document AI made it clear to me that things have moved decisively in the last couple of years.
jgalt212 3y ago
With the socialization of risk there is no good reason to not try to participate in bubbles--as longs you're not the first one rolled.
zoogeny 3y ago
I disagree with most of this article. My own anecdotal experience is that dozens of non-tech friends, coworkers, etc. tell me that they are using ChatGPT every day. These are people who are telling me how they use it to draft emails, create marketing material, create sales support material, create education material, etc. During every other hype boom I have been through that ultimately failed, those regular Joe types either hadn't even heard of the tech, simply didn't care or were actively hostile to it. Comparatively, with the new generative AI people are talking about how much they love it, how they use it every day, etc. Even the Internet had a bubble that popped (back in the Pets.com days, circa 2001 [1]) and this short-term AI bubble will pop too. I expect the same pattern as the early Internet: an early pop followed by a recovery that leads to massive growth. 1. https://en.wikipedia.org/wiki/Dot-com_bubble https://en.wikipedia.org/wiki/Dot-com_bubble
- netsharc 3y ago
  I think the pets.com analogy is apt. Everyone's running around making "AI-powered" companies (just like everyone was making online shops in the 90s) and clueless investors are throwing money at them because, "AI!"... Nvidia is lucky though, a lot of big companies will want their GPTs in-house to ensure their secrets won't be used to train someone else's GPT, and that means buying a lot of hardware (could be on a cloud data center too, but, same result for Nvidia)
  - rpeden 3y ago
    One thing to consider is that hardware companies that benefit from a boom don't always do so well in the long term. Lots of investors in Nortel and JDS Uniphase learned that the hard way in the early 2000s.
  - zoogeny 3y ago
    I'm cautious about picking winners and losers specifically. I remember back in the day all of the search engines: AltaVista, Ask Jeeves, Yahoo, Lycos, Web Crawler, Excite, etc. When Google popped up it was clearly superior to all of them and completely changed the landscape. In fact, there are few Internet companies from the early 2000s that made it up until now intact. The same may end up true for this crop of AI. But anyone who was alive during that time and working should ask themselves: would your career have been better or worse if you started getting familiar with Web Technologies in the early 2000s. What if you saw the impending dot com crash and you decided that the entire Internet was not going to live up to the hype? I don't have a crystal ball but my gut is telling me that 20+ years from now we'll see any short-term market correction around AI as a blip.
benced 3y ago
> As bad as 2008? Nobody knows, but it wouldn’t surprise me. The recency of 2008 has really warped people's brains. 2008 was the 2nd worst financial crisis of all time (maybe it would have been the worst if our fiscal and monetary tools were still at 1929 levels of sophistication). You should be extremely hesitant to declare that anything will even come close to it.
- duderific 3y ago
  Plus, that was not a stock bubble, that was a bad loans bubble. Real people borrowed trillions of dollars they then couldn't pay back. This is a completely different phenomenon. Not saying this current bubble won't pop eventually, but the scale would be on a completely different order of magnitude. It's not likely that 170-year-old banks will collapse and be sold off for pennies on the dollar (Lehman Brothers) if this bubble ends.
prewett 3y ago
I normally think the entire market is overpriced, which I mostly still do, but I'm not convinced that tech stocks are overpriced, at least the ones he referred to. Nvidia has a forward P/E of 32, which is in line with Microsoft (35), Apple (28), Intel (31). Compare to KO (Coca-Cola) which is 22, which gives the 33% tech premium that one of his linked articles notes. But KO is going to grow at the rate of global growth (3 - 5%); I think it is not unreasonable that all of those companies are going to grow at least 33% more than KO. So I don't think there is a bubble in major tech stocks. It is possible that Nvidia will not retain its current sales over the long term, but given that Nvidia cannot satisfy current demand, that seems unlikely in the next couple of years. Training the future models isn't likely to require less compute, and I think there is a reasonable case to be made that people will need domain-specific training for domain-specific ChatGPTs (or whatever the future is). Which means more training. Yes, I think it is way overhyped, but on the other hand, actual people are using ChatGPTs. I've used it for simple code to get started with an unfamiliar (but popular) library. I talked with a non-technical friend recently who was using it for relationship advice (with predictably unhelpful responses, it can't tell you the issues you are unaware of, but still). If there's an AI bubble, it's in the early stages. In my mind the over-priced aspect of the market is the complete denial that stock prices at 5% interest rates should not be higher than at 1%, all things being equal. At least not if value = profit / costOfCapital as it is supposed to.
- gmm1990 3y ago
  After this last run up in stocks despite high interest rates I've completely given up on trying to value based on any metrics.
  - prewett 3y ago
    I gave up on that because the valuation formulae all divide by a small number with large uncertainty. Instead I use dividend yield, P/E, P/B, and P/S, all relative to historical values for that company.
- HDThoreaun 3y ago
  Nvidia's margins are currently 75%. I dont see any way they can possibly keep that up for more than a few years. As soon as a legitimate competitor shows up those margins will be cut in half if not more. Coca cola on the other hand has a very predictable business, with profits extremely unlikely to decline anytime soon.
sgt101 3y ago
As ever the truth is in the middle. - LLM's provide functionality that was very difficult to implement until 2 years ago. - We can decode natural language statements relatively well and relatively easily. - We have an approximate common sense knowledge base. - We can encode statements into human readable text flexibly. (this was never so much of a problem as the first two - but it's still useful). But, these are not magic boxes that can tell our fortunes. So we can do good things if we engineer things well, and there is a lot of synergy with other AI tech that's been evolving in the last ten years. STT and object recognition are both very useful, end to end differentiable reasoners are coming in now as well. ML was becoming important in 2019, 2023 created an inflection and some hysteria, but there's substantial value to be had.
htormey 3y ago
To summarize what I think the author is trying to say with this article: 1) The stock market is in a bubble due to a decade of low interest rates and tax slashing by “right wing” governments. 2) Big tech in particular has been doing well but this is not sustainable. 3) AI is in a bubble. People are pinning their hopes on it to keep tech and I presume big tech growing. 4) A bunch of references to academic papers from 2000 about why AI is hard. 5) Gen AI requires a lot of compute which generates a lot of carbon and is bad for the environment. Thus his statement: “ I think I’m probably going to lose quite a lot of money in the next year or two. It’s partly AI’s fault, but not mostly. ” Which I disagree with. Because A) I think in the long term (5+ years) the investment in AI will be a positive ROI. B) if the stock market crashes in the short term it’s likely going to be for non AI reasons. 3) His arguments as to why AI isn’t going to pan out long term are a bit weak. Having lived in the Bay Area for over 13 year's, I’ve seen a few cycles: social, mobile, cloud, gig economy etc. The cycle pattern is always the same: a) a big new exciting tech idea comes along. b) investors pile in money. c) 95% or more of the companies they invest in go bust and if the space has legs some companies do really well. How is this any different with the current wave of AI companies? Today the big winners in AI are the incumbents, some examples: Microsoft: is making money being the hyperscaler of choice for AI companies (on prem ChatGPT, mistral, etc), it’s co pilot lines and enterprise subscription products. Nvidia is making bank being the current standard on which all of these companies run their models. They have some recent competition from Groq but are still likely going to be crushing it for the next year or two. Mainly due to precommits from the hyperscaleralers. Meta: seem to have been able to leverage AI to claw back advertising revenue due to Apples crack down by improving targeting. As someone who has raised venture capital to do an AI startup I’d say yes there is a lot of hype in this space. Yes a lot of these startups are going to go out of business but it’s also early days. I also think working AI into this poorly written article about how the stock market is going to crash is a bit of stretch. I’m concerned about a market crash myself but I am more worried about it being caused by a combo of a) the upcoming US election. B) the war in the Ukraine. C) conflict with Iran. D) interest rates in the USA being high.
Xeyz0r 3y ago
I've seen it before when i started to learn Korean. It was helpful for me
Terretta 3y ago
> Given that, why do I still think that the flood of money being thrown at this tech is dumb, and that most of it will be lost? Partly just because of that flood. When financial decision makers throw loads of money at things they don’t understand, lots of it is always lost. This is a common take, it feels like a not-cynical-actually-smart counter to the hype train. I think that take is missing something -- that this is how capitalism pays for fast learning. You have a space entirely unexploited, you give million pioneering fortune seekers shovels and ignite exploration across the whole unexplored surface area. Most will quickly discover they're unsuited to exploring, or picking at dirt with there's nothing to find here, some will find fools gold and labor over it until they realize it won't buy land, and a couple will strike oil instead of gold and build an entirely new economy generating unfathomable wealth. On the whole, no money was "lost", even without mentioning overcoming costs of delay since this got the exploration done the fastest. I'm not saying this is more efficient than centrally planned 5 year programs (though in practice it probably is), but it does seem more effective at learning a new thing fast ... ... and getting from “exploration to exploitation” the fastest.

224 points by headalgorithm 3y ago

Aswath Damodaran's Nvidia analsysis: Assuming 32% CAGR rate of over 5 years with 40% target operating margin at the end of period Nvidia is now 40% overvalued. https://aswathdamodaran.blogspot.com/2024/02/the-seven-samurai-how-big-tech-rescued.html https://aswathdamodaran.blogspot.com/2024/02/the-seven-samur...

lootsauce 3y ago
Logical yet, how overvalued did Tesla get?
- Swizec 3y ago
  In a world where seed and A stage AI startups are getting $100mm rounds and half that money's going to NVIDIA ... eh it's probably not too overvalued. I think there's more oomph left in the bubble.
  - deleted 3y ago
    [deleted]
  - bombcar 3y ago
    When the valuation is something like "it looks like it's assuming they'll continue to sell $X billion a year" it can be reasonablish. When the valuation requires "they will continue to grow sales X% a year" is when it quickly becomes impossible, and for a much smaller X than you might realize.
  - __loam 3y ago
    Even if you do think AI is a bubble, Nvidia's capacity is completely booked for a few years or so if I'm not mistaken. And that's with huge margins.
- not2b 3y ago
  As the old saying goes, the market can stay irrational longer than you can stay liquid. So shorting a clearly overvalued stock can be a dangerous move.
  - AlbertCory 3y ago
    Oops. We posted that at the same time. Short Nvidia only if you hedge with some call options. Or other financial instrument that mitigates your losses.
- AlbertCory 3y ago
  the market can stay irrational longer than you can stay solvent.
airstrike 3y ago
> Last summer, when I valued Nvidia in this post, I found it over valued at a price of $450, and sold half my holdings, choosing to hold the other half. Now that the price has hit $680, I plan to repeat that process, and sell half of my remaining holdings. Well, it looks like he lost a lot of money
- msoad 3y ago
  He bought it before me at least, so he *made* money. Doesn't matter if didn't predicted the top. He saw a stock that he thought will increase in value, bought some and sold at a higher price. That's what it matters
- Ekaros 3y ago
  So if someone buys a stock and then that stocks goes bankrupt. By that logic they lost no money... Taking money off the table when it is enough for you is the way you guarantee that you make any money...
  - airstrike 3y ago
    yeah, but he could have waited a little bit to see signs of a slowdown instead of taking such a radical contrarian view and leaving ~80% upside on the table. better to risk it going down from $450 to $400 before selling than to miss out on the ride to $800
- smeeth 3y ago
  Nope. Failure to maximize returns is not losing money.
  - airstrike 3y ago
    There's a big difference between failing to maximize returns and missing out on an 80-90% upside (so far). Selling at $450 was a pretty bad call
- OtherShrezzing 3y ago
  I hope in both instances the author at least held out the extra couple of weeks until earnings day.
bloodyplonker22 3y ago
Aswath Damodaran looks at valuations with a very one-dimensional lens because he is not an innovator, engineer, or even a business person. Ever since Amazon was in its early days, he has said that Amazon was overvalued and he has always been wrong because Amazon has always found new verticals to build and create more value with.
- INGELRII 3y ago
  Damodaran makes detailed analysis with assumptions in the open. Put your numbers to the Exel sheet and calculate valuations using your own numbers. >Ever since Amazon was in its early days, he has said that Amazon was overvalued and he has always been wrong because Amazon has always found new verticals to build and create more value with. Amazon has been overvalued multiple times. Amazon stock had negative return 10 years between 1999 - 2009.
  - lotsofpulp 3y ago
    https://dqydj.com/stock-return-calculator/ https://dqydj.com/stock-return-calculator/ Jan 5, 1999 to Dec 28, 2009, AMZN had an 8.9% annual return. Jan 5, 1999 to Dec 28, 2008 was -0.52% annual return. Jan 5, 2000 to Dec 28, 2009 was 6.88% annual return. But why give a crap about returns during a specific 10 year period? Almost nobody is buying something today to liquidate all of it at a single point in time in the future.
  - woobar 3y ago
    > Amazon stock had negative return 10 years between 1999 - 2009. It did not. You will have to cherry pick very specific days in this time frame (top of the dot com bubble and bottom of the GFC) to get negative returns. But how about 1998-2008 or 2000-2010? Here is how $10K invested in AMZN performed in 10 years [1]: 1998 - 2008 $102,134 1999 - 2009 $25,124 2000 - 2010 $23,625 2001 - 2011 $111,229 [1] https://www.portfoliovisualizer.com/backtest-portfolio?s=y&sl=28FqLdhmApVJzlaxLM4wFa https://www.portfoliovisualizer.com/backtest-portfolio?s=y&s...
- xetplan 3y ago
  This is seriously might be the worst post I have ever read online. To say it is clueless would be too nice.

bloqs 3y ago

Younger people who may not know: Tim Bray was one of the creators of XML. Also a nice guy on Twitter (at least he was a few years ago) he's probably active here too.

timeagain 3y ago
His blog posts are one of the main things that keep me coming back here. Insightful, and he often is able to put into words things about the industry that I can only feel in the periphery of my heart.
4ndrewl 3y ago
Tim Bray is still a nice guy on Mastodon https://mastodon.me.uk/@timbray@cosocial.ca https://mastodon.me.uk/@timbray@cosocial.ca [Edited - added Tim's name to help future searchers]
- deleted 3y ago
  [deleted]
throw0101c 3y ago
> Younger people who may not know: Tim Bray was one of the creators of XML. Also editor of the JSON RFCs: * https://en.wikipedia.org/wiki/Tim_Bray#JSON https://en.wikipedia.org/wiki/Tim_Bray#JSON * https://datatracker.ietf.org/person/tbray@textuality.com https://datatracker.ietf.org/person/tbray@textuality.com

rglover 3y ago

> I kind of flipped out, and was motivated to finish this blog piece, when I saw this: “UK government wants to use AI to cut civil service jobs: Yes, you read that right.” The idea — to have citizen input processed and responded to by an LLM — is hideously toxic and broken; and usefully reveals the kind of thinking that makes morally crippled leaders all across our system love this technology. And this will not just be in government, it will be everywhere. The scariest part is that as people start to spend less time developing a skill set, and instead deferring to AI answers, you will cross a point where this problem can't be fixed (because nobody has the skills to fix it and the AI is trained on the outputs of previous generations of humans). For the "olds" who already have a skillset, this will be incredibly lucrative (as those who can afford to pay to fix it will handsomely). But the potential for this to—at best—plateau humanity and at worst, make it regress, is significant. The dark humor in all this: we thought AI would get us the Terminator, but instead it's going to get us rapid degeneration. --- Edit: an addendum, the overall point I'm making is well encapsulated in this talk https://www.youtube.com/watch?v=ZSRHeXYDLko https://www.youtube.com/watch?v=ZSRHeXYDLko

ildjarn 3y ago
The future was predicted in The Machine Stops and Mockingbird
- dgfitz 3y ago
  I'd argue more of a mix of Brave New World, 1984, and Atlas Shrugged
mritchie712 3y ago
that'd be WALL-E
- temp0826 3y ago
  I was thinking Idiocracy. Time to use AI to generate enough blogspam about the benefits of watering plants with gatorade to "poison the well" of datasets used for future training.

debacle 3y ago

Is there a resource I can use for understanding how "dumb money" impacts the markets?

lbotos 3y ago
lots of articles talking about "index investing/passive investing market impacts" should get you what you are looking for.

dado3212 3y ago

Archive while this is down - https://web.archive.org/web/20240229191137/https://www.tbray.org/ongoing/When/202x/2024/02/25/Money-AI-Bubble https://web.archive.org/web/20240229191137/https://www.tbray...

baobabKoodaa 3y ago
PSA: publish your static blog content on a CDN, not on a $5 VPS
- sodality2 3y ago
  If it's static it doesn't (shouldn't) matter. I had over a million hits on my $3/mo VPS and it handled the load perfectly fine.
  - baobabKoodaa 3y ago
    How many times do we have to see a blog post hugged to death by HN before you will change your mind? We literally saw it happen with OP just now.
    - sodality2 3y ago
      My point is that it's typically a design choice when choosing something like Wordpress or a dynamic site, versus a static HTML file that's under 100kb. Though in this case the site's resources are under 400KB, so I can't really be sure.
      - baobabKoodaa 3y ago
        Nobody's saying a static site has to be under 100kb or whatever. You can have a static site that has 100Mb+ of assets. You can put whatever design you want on a static site, it doesn't have to be minimalist and without images.
xenonite 3y ago
Over unencrypted HTTP, the server responds well: http://www.tbray.org/ongoing/When/202x/2024/02/25/Money-AI-Bubble http://www.tbray.org/ongoing/When/202x/2024/02/25/Money-AI-B...

elijahbenizzy 3y ago

There's an argument that the AI tech bubble is just a continuation from the value-add of automating everything and the productivity/GDP-increase that causes. It is just that investors are so skittish that they'll only let the floodgates open if its "sexy", so AI comes in and restarts the money machine.

bombcar 3y ago
What else are investors going to do, sell stocks and buy bonds?
__loam 3y ago
Is that why profitable companies like Google are laying off thousands of workers?
- elijahbenizzy 3y ago
  While simultaneously achieving record revenue/profit?

PheonixPharts 3y ago

> Things have been too good for too long in InvestorWorld That's not by accident and it's been at the expense of non-investor world for a long time. What we're seeing is finance capitalism suck surplus value from every piece of the Earth it can. We're still burning more fossil fuels than ever before [0] despite the now visible risk of climate catastrophe. I believe we're likely to see investors continue to become irrationally wealthy while increasing larger and larger pools of people a driven into ever increasing situations of hardship. I see no signs of the madness stopping until both human and planetary resources start to buckle under the pressure and refuse to give yields they once did. The article repeatedly mentions crypto as though it were an obvious bubble, but bitcoin is near record highs and even Sam Altman's bizarre world coin is at extreme record highs, COIN is up 200% in the past year. The bubble won't "burst", it's just that increasingly less people will be invited in. 0. https://ourworldindata.org/fossil-fuels https://ourworldindata.org/fossil-fuels

netsharc 3y ago
Yeah, can't imagine the gigatons of CO2 needed to produce CPU/GPU chips (and other hardware) as well as to run these machines, and for what, so some people have to work less generating a document or applying effects to a movie, or to answer a customer's FAQ, or so you can concentrate less while driving... It really is like that paperclip game where at the beginning you can click once to get 1 paperclip and at the end you're using the resources of a galaxy to generate gazillion paperclips, except on this planet the number we're all irrationally obsessed with wanting to make go up is our bank account total.
TapWaterBandit 3y ago
At this point crypto clearly isn't a bubble. And why would it be? Cryptographically secured money has some advantages over fiat money. This doesn't mean fiat will disappear and all crypto will succeed. But most fiat currencies haven't really "succeeded" either. Money is a very "efficient" market in this sense because each individual can decide do you want to hold currency X or currency Y or currency Z? And there are pros and cons to each that lead to price discovery between currencies. And I think as time goes on it is becoming more and more apparent that many central banks do not take the management of their countries currency seriously and so people choose alternatives. This is what well-functioning markets look like. Consumer choice and incentives.

mattgreenrocks 3y ago

Absent GenAI, do the BigTechs of the world have enough growth going on elsewhere to appease Wall St volcano gods sufficiently? They all seem to be hyping GenAI a ridiculous amount, prompting this question. And it makes sense for them to ride the hype train and get something out of it. But it also makes me wonder if that only makes the eventual drop even larger.

marcinzm 3y ago

> I kind of flipped out, and was motivated to finish this blog piece, when I saw this: “UK government wants to use AI to cut civil service jobs: Yes, you read that right.” The idea — to have citizen input processed and responded to by an LLM — is hideously toxic and broken; and usefully reveals the kind of thinking that makes morally crippled leaders all across our system love this technology. As someone who actually had to deal with the government recently in the US I disagree. It was impossible to reach a human or otherwise get an answer to my likely not too unusual question. If they had an even half decent LLM then I'd have probably had my answer and action items for me to do within 30 seconds. Instead I've wasted days in various attempts to get some type of answer. I recently needed to fix some issues in something I filled with the government. Email support used to exist but probably cut due to budgets. Chat support used to exist but probably cut due to budgets. Phone support has no waiting queue and require 1 minute of entering numbers to hit the disconnect point (due to not available agents). Physical mail seems an option but I don't know the format or address. Etc.

bombcar 3y ago
The only thing I've seen that even gets close to working is physically going to the office in person but hell finding what or where that is. And you can't even do that with Social Security anymore. If it is something you could be legally liable for, I'd at least send a certified letter to whatever address you can find, so that if it becomes a problem later you can at least show you tried.
- marcinzm 3y ago
  > The only thing I've seen that even gets close to working is physically going to the office in person but hell finding what or where that is. They do try to discourage it sometimes. The local passport office has a sign on the door that says "by appointment only." The first thing you hear upon walking in is "if you don't have an appointment get into line B." If you have an urgent mater they will take care of it without an appointment. I wonder how many people turned around upon seeing that sign on the door. Dark patterns left and right to make it harder to get anywhere.

throw0101c 3y ago

Just because some technology may end up changing the world, it does not necessarily mean that it is a good investment: * https://en.wikipedia.org/wiki/Technological_Revolutions_and_Financial_Capital https://en.wikipedia.org/wiki/Technological_Revolutions_and_... * Via Ben Felix: https://www.pwlcapital.com/investing-technological-revolutions/ https://www.pwlcapital.com/investing-technological-revolutio...

aejm 3y ago

> I dunno if anyone will build an AGI in my lifetime, but I am confident that the task would remain beyond reach without the functions offered by today’s generative models. This. LLMs are not the path to AGI. At best they’re one of many ingredients.

IanCal 3y ago

> I kind of flipped out, and was motivated to finish this blog piece, when I saw this: “UK government wants to use AI to cut civil service jobs: Yes, you read that right.” The idea — to have citizen input processed and responded to by an LLM — That's not what the article says, it's about processing responses not responding to people. I don't think there's anything about responding to citizens. And it also doesn't say LLM it says AI.

frereubu 3y ago
He's talking about this article: https://www.engadget.com/uk-government-wants-to-use-ai-to-cut-civil-service-jobs-140031159.html https://www.engadget.com/uk-government-wants-to-use-ai-to-cu...
- IanCal 3y ago
  I know. It doesn't talk about responding to citizens as far as I can tell, can you quote where it does?
sgt101 3y ago
The UK gov is probably talking about using embeddings to respond to FOI requests. 1000000 documents -> 1000000000 embeddings Citizen question -> GPT normalised question -> 'embeddings match 'embeddings <-> embeddings recover document fragments with matched embeddings use GPT to create answer from document fragments The question is how successfully this process creates the answers required. Who knows? But, I would not be surprised if it worked pretty well and it might boost productivity to the point where there's a massive saving to be had. Maybe - but that's the fun!
- IanCal 3y ago
  I doubt it. The article mentions generating answers based on sources like Hansard, and dealing with large numbers of consultation responses. Frankly it's shocking they haven't done any ai stuff with consultation responses, lots of freeform text is where you usually want to start doing clustering and analysis.

ahnick 3y ago

Tim writes a post about a "Money Bubble". There is now an alternative form of money that anyone can buy through their 401k if you believe there is a money bubble. He dismisses?(or doesn't even consider it?) since it uses a blockchain, because that's a dirty word in the cloud/SaaS tech circles. sigh

iydhjdfjtg 3y ago
Money buys things. Cryptocurrency does not. Some may use it as a store of value but it’s not money any more than gold or silver is.
- Etheryte 3y ago
  I'm not sure if this argument makes sense today. You can buy many things using cryptocurrency, from food to cars to houses.
  - cheema33 3y ago
    Other than a few token places that you might see on the news, crypto is not really used as money. And never will be. Transaction fees.
    - Etheryte 3y ago
      This is not really true in my experience, crypto is more than just Bitcoin. There are a number of options that do not have high transaction fees and that are use fairly often to trade goods.

andsoitis 3y ago

> but there are just way more ways for things to go wrong than right in the immediate future That is always the case so I wouldn’t over index on that.

nkohari 3y ago

I think most people (including many working in AI!) would agree that AI is currently at the peak of the hype cycle and there will be a bloodletting at some point. But I don't really understand how AI being hyped, and NVIDIA's stock being overvalued by extension, could result in a 2008-like market crash.

Ekaros 3y ago
Tech stocks are responsible for most of the gains in stock market in past year. Nvidia is alone responsible for 28%... If that just doesn't seem unsustainable I don't think what is... AI is not pulling up traditional firms just a very small number of tech stocks. So with how much is concentrated on a few tech stocks, downturn in tech could lead to significant correction.
- VirusNewbie 3y ago
  >Tech stocks are responsible for most of the gains in stock market in past year. Ok, but none of the major tech companies other than Nvidia are AI companies. Sure, some of the pop to MSFT's stock is probably because of the OpenAI deal, AWS, GCP, and Azure is riding some of the wave of new AI investment money coming in, but none of them are first and foremost AI companies selling AI.
- nkohari 3y ago
  A stock market correction, sure. The market ebbs and flows, though. What happened in 2008 was a catastrophe that caused a multiyear worldwide recession. It's called the Global Financial Crisis for a reason.

hn_throwaway_99 3y ago

While I agreed with a lot in this post, I'm also pretty wary of the underlying, unstated idea that average investors can avoid bubbles popping while also somehow taking advantage when things go up - that is, he doesn't really say it in so many words, but he's essentially talking about timing the market. I started my tech career around the turn of the century, and made the mistake of putting a ton of money (at least for me, at the time) into Global Crossing. My thought was that while there were all these "fluffy" doomed dot coms at the time, Global Crossing had billions in real, physical infrastructure they built. Obviously I didn't quite understand debt at the time, never mind the actual fraud that Global Crossing committed (I remember thinking "Wow, stocks really can go to zero and never come back.") Sure, you could argue I made every newbie investor mistake in the book, but the worse consequence for me was that it "spooked" me early in my investing career, such that I became very reticent to want to invest in things when I felt they were overvalued. E.g. I was one of those people who thought there was a giant tech bubble when Facebook bought Instagram for a billion dollars - in 2012... So sure, you may think I'm an idiot, but I can quite guarantee I was far from alone. It was only at the point where I really, truly believed "I'm definitely not smarter than anyone else in the market" (and hardly anyone is) that I just put my money in index funds, did regular rebalancing, and otherwise forgot about it. We may be in an AI bubble, we may not, but I've seen way too many "vastly overvalued" companies continue to be "vastly overvalued" for over a decade (and then only briefly coming down before shooting back up again) to think that Tim Bray has any special insight here.

dottjt 3y ago
I had the exact same experience with Bitcoin back around 2014. Only now just getting back into investing as I realise it's an important thing to do for wealth preservation. I suppose it's not uncommon for people to have this kind of experience, so I'm just glad I had it young.
- 2024throwaway 3y ago
  Bitcoin != investing. I say this as someone who lost money in the 12DailyPro / eGold fiasco of 2005/2006. (read: I am very, very dumb.)

glitchc 3y ago

> Produce plausible output That's basically art. So AI's only really good at producing art. So we're safe... but now I feel bad for the artists.

frereubu 3y ago
Depends on your audience. One of the things that stuck in my mind from my sculpture degree was a tutor's contention that plenty of (visual) artists produce "things that look like art" but aren't worthy of the name. Subjective, yes, but I knew exactly what she meant. The current generation of AI by definition only produces entirely derivative works. All artists are influenced to some extent by their visual history, whether they like it or not, but there are leaps that some of them make which I don't think anything which works solely on previously-generated work could make, and those tend to be the most interesting. (Although I'd agree that artists who really lean into derivation, like Andy Warhol or Hans Haacke, are also interesting).

pyrrhotech 3y ago

It's obvious that bubbles exist in retrospect, but determining whether current growth and valuations are sustainable in the present is incredibly difficult. As another poster mentioned, we are essentially talking about market timing here. Most investors have been conditioned by many popular talking heads to immediately dismiss the idea of successful market timing - and for the most part, the talking heads are correct. For the average investor, successful market timing is nearly impossible. However, we have many counter-examples of successful market timers over the long term. James Simons' Medallion fund has returned 50%+ CAGR over a multi-decade period and stomping the market, creating many centimillionaires and billionaires in the process. I set out thinking, what's so different about Simons and his crew at RenTec? Why is it so difficult for their success to be replicated? Not one to easily back down from a challenge, I began working on my own algorithms to successfully hedge against market downturns and provide superior absolute and risk-adjusted returns compared to the S&P 500. While I haven't yet seen Simons-level success in live trading, since launching Grizzly Bulls (https://grizzlybulls.com https://grizzlybulls.com) in January 2022, 6 of our 7 models have outperformed the market on an unleveraged basis: SPX (benchmark): +7% VIX-TA-Macro-MP Extreme: +39.98% VIX-TA-Macro Advanced: +34.38% VIX-TA Advanced: +12.92% VIX Advanced: +9.91% Vix Basic: +5.76% TA - Mean Reversion: +15.46% TA - Trend: +12.97% Of course two years of outperformance also doesn't yet stand the test of time of Simons' remarkable run, but I'm confident that we've discovered alpha here.

SirLJ 3y ago
This is great, I am also running my own AI investment robots and this is the future and I believe you can absolutely beat the market and even thinking to use similar approach to other structured data sets and create a startup around the idea... “If you don't find a way to make money while you sleep, you will work until you die.” ― Warren Buffett
fmx 3y ago
> since launching Grizzly Bulls (https://grizzlybulls.com https://grizzlybulls.com) in January 2022, 6 of our 7 models have outperformed the market on an unleveraged basis: > VIX-TA-Macro Advanced: +34.38% I'm not sure how to reconcile that with the numbers shown on https://grizzlybulls.com/models/vix-ta-macro-advanced https://grizzlybulls.com/models/vix-ta-macro-advanced When 2022 is selected as the starting year, it shows an increase from 16,911,242 to 17,881,510 which is an increase of 5.7% in 26 months.

zooq_ai 3y ago

If Tim Bray weren't a renowned progressive / socialist, I would have listened to him about Bubbles and Investing. But he comes from a very liberal skeptical engineer and is always wrong. (note the use of right-wing used for Tax cuts. is Tax breaks that extreme of a position? It is for socialists / progressives). Anyway, here's to think about AI. Intelligence is the most precious commodity of all of humanity. Intelligence captured in bits is easily distributed and scaled. We pay $1000 / hour for intelligent agents and it's easy to see, how a super intelligent system can capture 50% margins on that. (Volume of Data and Proprietary hooks will make switching difficult). But, wait, there is more. Intelligence begets more Intelligence. Every artifact an AI produces, we need more AI to maintain, enhance, distribute it. So, for the first time we have an entity whose demand creates it's own demand spiraling into a vicious positive growth rate. All this means is our AI demand may at 0.000001% of what the demand in 20 years would look like, which makes AI enablers incredibly cheap. I could be wrong, but to dismiss the possibility is exactly what's wrong with today's "skeptical liberal (with a decel mindset) engineer's" framework / vision. Build your own mental model

neilk 3y ago

I mostly agree but I have a few quibbles with some arguments. For instance, Bray considers the adage "The CIO is the last to know". From the 90s until now, developers have always snuck new technology in without management approval. You put Apache on a forgotten Linux box in the corner because it's easy and fun, and a few months later the whole company relies on it. Developers are not rushing to deploy skunkworks generative AI solutions, so, the argument goes, probably generative AI isn't that good. There's a couple of problems with this. 1. Not everything that is good can be deployed skunkworks-style. It might be that AI is only really good with incredibly high up-front costs and extremely specialized developers. Like launching a satellite. You can't do it yourself with stuff you have lying around, and even if you had the money to do it you probably don't have the expertise to do it safely. But it's still extremely valuable! 2. Sometimes we are using this technology to hack up solutions to personal problems! I had a video which I wanted my hearing-impaired father to watch. I could have paid a human or AI-powered service to generate subtitles, but I found that I could do it myself with OpenAI's Whisper, on an old laptop, and then munging text files together in the usual way. I was a little shocked that this worked offline. I could have done it on a plane. This absolutely fits into a hacker workflow.

wrs 3y ago
Yeah, it’s like everyone forgot about Whisper because of ChatGPT. A friend had 200 hours of audio of a retiring expert naturalist’s park tours and wanted to publish them so the knowledge wouldn’t be lost. I turned them it all into incredibly accurate text files overnight using just my M1 laptop, for free. That’s crazy.
- sgt101 3y ago
  Also effective object recognition & OCR. I got asked about onboarding someone to a fund online and it occurred to me to check out current services before responding - 20 seconds with google document AI made it clear to me that things have moved decisively in the last couple of years.

jgalt212 3y ago

With the socialization of risk there is no good reason to not try to participate in bubbles--as longs you're not the first one rolled.

zoogeny 3y ago

I disagree with most of this article. My own anecdotal experience is that dozens of non-tech friends, coworkers, etc. tell me that they are using ChatGPT every day. These are people who are telling me how they use it to draft emails, create marketing material, create sales support material, create education material, etc. During every other hype boom I have been through that ultimately failed, those regular Joe types either hadn't even heard of the tech, simply didn't care or were actively hostile to it. Comparatively, with the new generative AI people are talking about how much they love it, how they use it every day, etc. Even the Internet had a bubble that popped (back in the Pets.com days, circa 2001 [1]) and this short-term AI bubble will pop too. I expect the same pattern as the early Internet: an early pop followed by a recovery that leads to massive growth. 1. https://en.wikipedia.org/wiki/Dot-com_bubble https://en.wikipedia.org/wiki/Dot-com_bubble

netsharc 3y ago
I think the pets.com analogy is apt. Everyone's running around making "AI-powered" companies (just like everyone was making online shops in the 90s) and clueless investors are throwing money at them because, "AI!"... Nvidia is lucky though, a lot of big companies will want their GPTs in-house to ensure their secrets won't be used to train someone else's GPT, and that means buying a lot of hardware (could be on a cloud data center too, but, same result for Nvidia)
- rpeden 3y ago
  One thing to consider is that hardware companies that benefit from a boom don't always do so well in the long term. Lots of investors in Nortel and JDS Uniphase learned that the hard way in the early 2000s.
- zoogeny 3y ago
  I'm cautious about picking winners and losers specifically. I remember back in the day all of the search engines: AltaVista, Ask Jeeves, Yahoo, Lycos, Web Crawler, Excite, etc. When Google popped up it was clearly superior to all of them and completely changed the landscape. In fact, there are few Internet companies from the early 2000s that made it up until now intact. The same may end up true for this crop of AI. But anyone who was alive during that time and working should ask themselves: would your career have been better or worse if you started getting familiar with Web Technologies in the early 2000s. What if you saw the impending dot com crash and you decided that the entire Internet was not going to live up to the hype? I don't have a crystal ball but my gut is telling me that 20+ years from now we'll see any short-term market correction around AI as a blip.

benced 3y ago

> As bad as 2008? Nobody knows, but it wouldn’t surprise me. The recency of 2008 has really warped people's brains. 2008 was the 2nd worst financial crisis of all time (maybe it would have been the worst if our fiscal and monetary tools were still at 1929 levels of sophistication). You should be extremely hesitant to declare that anything will even come close to it.

duderific 3y ago
Plus, that was not a stock bubble, that was a bad loans bubble. Real people borrowed trillions of dollars they then couldn't pay back. This is a completely different phenomenon. Not saying this current bubble won't pop eventually, but the scale would be on a completely different order of magnitude. It's not likely that 170-year-old banks will collapse and be sold off for pennies on the dollar (Lehman Brothers) if this bubble ends.

prewett 3y ago

I normally think the entire market is overpriced, which I mostly still do, but I'm not convinced that tech stocks are overpriced, at least the ones he referred to. Nvidia has a forward P/E of 32, which is in line with Microsoft (35), Apple (28), Intel (31). Compare to KO (Coca-Cola) which is 22, which gives the 33% tech premium that one of his linked articles notes. But KO is going to grow at the rate of global growth (3 - 5%); I think it is not unreasonable that all of those companies are going to grow at least 33% more than KO. So I don't think there is a bubble in major tech stocks. It is possible that Nvidia will not retain its current sales over the long term, but given that Nvidia cannot satisfy current demand, that seems unlikely in the next couple of years. Training the future models isn't likely to require less compute, and I think there is a reasonable case to be made that people will need domain-specific training for domain-specific ChatGPTs (or whatever the future is). Which means more training. Yes, I think it is way overhyped, but on the other hand, actual people are using ChatGPTs. I've used it for simple code to get started with an unfamiliar (but popular) library. I talked with a non-technical friend recently who was using it for relationship advice (with predictably unhelpful responses, it can't tell you the issues you are unaware of, but still). If there's an AI bubble, it's in the early stages. In my mind the over-priced aspect of the market is the complete denial that stock prices at 5% interest rates should not be higher than at 1%, all things being equal. At least not if value = profit / costOfCapital as it is supposed to.

gmm1990 3y ago
After this last run up in stocks despite high interest rates I've completely given up on trying to value based on any metrics.
- prewett 3y ago
  I gave up on that because the valuation formulae all divide by a small number with large uncertainty. Instead I use dividend yield, P/E, P/B, and P/S, all relative to historical values for that company.
HDThoreaun 3y ago
Nvidia's margins are currently 75%. I dont see any way they can possibly keep that up for more than a few years. As soon as a legitimate competitor shows up those margins will be cut in half if not more. Coca cola on the other hand has a very predictable business, with profits extremely unlikely to decline anytime soon.

sgt101 3y ago

As ever the truth is in the middle. - LLM's provide functionality that was very difficult to implement until 2 years ago. - We can decode natural language statements relatively well and relatively easily. - We have an approximate common sense knowledge base. - We can encode statements into human readable text flexibly. (this was never so much of a problem as the first two - but it's still useful). But, these are not magic boxes that can tell our fortunes. So we can do good things if we engineer things well, and there is a lot of synergy with other AI tech that's been evolving in the last ten years. STT and object recognition are both very useful, end to end differentiable reasoners are coming in now as well. ML was becoming important in 2019, 2023 created an inflection and some hysteria, but there's substantial value to be had.

htormey 3y ago

To summarize what I think the author is trying to say with this article: 1) The stock market is in a bubble due to a decade of low interest rates and tax slashing by “right wing” governments. 2) Big tech in particular has been doing well but this is not sustainable. 3) AI is in a bubble. People are pinning their hopes on it to keep tech and I presume big tech growing. 4) A bunch of references to academic papers from 2000 about why AI is hard. 5) Gen AI requires a lot of compute which generates a lot of carbon and is bad for the environment. Thus his statement: “ I think I’m probably going to lose quite a lot of money in the next year or two. It’s partly AI’s fault, but not mostly. ” Which I disagree with. Because A) I think in the long term (5+ years) the investment in AI will be a positive ROI. B) if the stock market crashes in the short term it’s likely going to be for non AI reasons. 3) His arguments as to why AI isn’t going to pan out long term are a bit weak. Having lived in the Bay Area for over 13 year's, I’ve seen a few cycles: social, mobile, cloud, gig economy etc. The cycle pattern is always the same: a) a big new exciting tech idea comes along. b) investors pile in money. c) 95% or more of the companies they invest in go bust and if the space has legs some companies do really well. How is this any different with the current wave of AI companies? Today the big winners in AI are the incumbents, some examples: Microsoft: is making money being the hyperscaler of choice for AI companies (on prem ChatGPT, mistral, etc), it’s co pilot lines and enterprise subscription products. Nvidia is making bank being the current standard on which all of these companies run their models. They have some recent competition from Groq but are still likely going to be crushing it for the next year or two. Mainly due to precommits from the hyperscaleralers. Meta: seem to have been able to leverage AI to claw back advertising revenue due to Apples crack down by improving targeting. As someone who has raised venture capital to do an AI startup I’d say yes there is a lot of hype in this space. Yes a lot of these startups are going to go out of business but it’s also early days. I also think working AI into this poorly written article about how the stock market is going to crash is a bit of stretch. I’m concerned about a market crash myself but I am more worried about it being caused by a combo of a) the upcoming US election. B) the war in the Ukraine. C) conflict with Iran. D) interest rates in the USA being high.

Xeyz0r 3y ago

I've seen it before when i started to learn Korean. It was helpful for me

Terretta 3y ago

> Given that, why do I still think that the flood of money being thrown at this tech is dumb, and that most of it will be lost? Partly just because of that flood. When financial decision makers throw loads of money at things they don’t understand, lots of it is always lost. This is a common take, it feels like a not-cynical-actually-smart counter to the hype train. I think that take is missing something -- that this is how capitalism pays for fast learning. You have a space entirely unexploited, you give million pioneering fortune seekers shovels and ignite exploration across the whole unexplored surface area. Most will quickly discover they're unsuited to exploring, or picking at dirt with there's nothing to find here, some will find fools gold and labor over it until they realize it won't buy land, and a couple will strike oil instead of gold and build an entirely new economy generating unfathomable wealth. On the whole, no money was "lost", even without mentioning overcoming costs of delay since this got the exploration done the fastest. I'm not saying this is more efficient than centrally planned 5 year programs (though in practice it probably is), but it does seem more effective at learning a new thing fast ... ... and getting from “exploration to exploitation” the fastest.