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Boom, bubble, bust, boom. Why should AI be different?

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Re: Boom, bubble, bust, boom. Why should AI be different?

#71

Post by kergonath »

rokhayakebe wrote: post #48
_verandaguy wrote: post #43

Earlier quoted context omitted.

But currently, nobody's actually making money on AI. It's also not doing peoples' jobs for them, for the most part. AI's supporters do very loudly proclaim this, though.

What would it take to make money? Double or triple the pricing. Most of these companies messed on pricing initially. ChatGPT Plus/ Claude Plus (or whatever it is called) are $20/month. These should be $80 to $100/month products. Probably even more, $200.

But then, how do you get the users and growth figures that justify the current boom in infrastructure build-up? A high equilibrium might be profitable to a few companies and useful to a few rich customers, but it’s far from justifying current valuations.

Re: Boom, bubble, bust, boom. Why should AI be different?

#72

Post by mancerayder »

tempestn wrote: post #60
shigawire wrote: post #53

I think I'm asking for the impossible here... But is anyone trying to hedge risk in their personal finances? I'm not a real "investor" (index funds only) but I am feeling more willing to forgo gains to be more risk averse just based on my own neuroses. Maybe I cash out and buy T-bills? Gold? Bullets? What's the non-crazy person equivalent?

I've always used value-tilted indexes, and am hoping that they will suffer less when the bubble pops. With that and a healthy dose of fixed income (which I chose years ago based on an assumption that the equity portion of the portfolio could drop 50% in a downturn at any time) I'm trying to stick to the plan and not try to time the market. Even though it very much feels like the bubble is near its peak (if not just p…

What sort of fixed income that doesn't require much research? A broad bond fund?

What are the implications of bond prices in this dubious interest rate environment? It seems no one knows what the Fed should or wants to do, including the Fed. And if the economy is on shaky ground, won't that be bad for bonds if companies can default?

Re: Boom, bubble, bust, boom. Why should AI be different?

#73

Post by chermi »

AstroBen wrote: post #55
stevage wrote: post #42

Fundamentally they seem different. The web looked like it had the potential to make lots of money but no one knew exactly how. AI literally does people's jobs for them. There's not much imagination required.

Which jobs is it doing, exactly? From what I can tell at this point it's a solution looking for a problem. Incredibly impressive, not so useful

Customer service.

Re: Boom, bubble, bust, boom. Why should AI be different?

#74

Post by pedalpete »

I wonder if we need a new term rather than bubble for these types of short-term over-invested sectors.

The Tulip mania (if it existed) was a bubble. It popped, it's never coming back. BeanieBabies was a bubble for the same reason. NFT art remains to be seen, but I think it was likely a bubble.

The internet was over-invested and decreased significantly when looking on a timeline of 5-7 years.

But outside of that, if you were to take the valuation of internet companies, it is greater than during the period we call the bubble.

We'll see the same with AI. There will most likely be a drop in valuations when looking at a medium term timescale, but long-term, I expect AI companies will be worth far more than they are today.

When the markets drop on a monthly scale, but then rebound, we don't call that a bubble, so why do we call this sub-decade decline a bubble?

Do you think we should have another term for this?

Same with the housing bubble, yes, it popped and lots of people got hurt, but those who were able to hang-on, I think, ended up ok, and on a moderately decent timeline.

Re: Boom, bubble, bust, boom. Why should AI be different?

#75

Post by carlosjobim »

munk-a wrote: post #32
carlosjobim wrote: post #23

Earlier quoted context omitted.

The value of LLM is reliable high quality translation between all languages. The economic value of this is at least trillions of dollars per year. The cultural and humanitarian value is equally gigantic, even if it can't be measured in dollars and cents.

That is of immense social value - but manual translation services for commercial projects (like application localization) is already dirt cheap to do and automatic casual translation services for consumers would be incredibly difficult to monetize.

I think your perspective might be severely limited. There exists millions of businesses outside of big IT enterprises.

Re: Boom, bubble, bust, boom. Why should AI be different?

#76

Post by pinkmuffinere »

shigawire wrote: post #53

I think I'm asking for the impossible here... But is anyone trying to hedge risk in their personal finances? I'm not a real "investor" (index funds only) but I am feeling more willing to forgo gains to be more risk averse just based on my own neuroses. Maybe I cash out and buy T-bills? Gold? Bullets? What's the non-crazy person equivalent?

Why is that an impossible question? I've moved from investing mostly in the SP500 (which is something like %25 big AI companies) to investing into other indices which are not so AI-heavy -- healthcare, infrastructure, etc. I've also put a lot into TSLS (inverse etf for tesla), because I think it is particularly overvalued. I still have a fairly high risk tolerance, but trying to reduce the amount that I'm tied to AI. I'm sure there are even better ways this could be done, but this is a fairly simple way to do roughly what I want.

Edit: Notably, you don't have to fully stop investing in the SP500. If you were previously 60% weighted towards the SP500, you can still reduce your exposure by changing that to 20%, or something like that.

Re: Boom, bubble, bust, boom. Why should AI be different?

#77

Post by KK7NIL »

tempestn wrote: post #60
shigawire wrote: post #53

I think I'm asking for the impossible here... But is anyone trying to hedge risk in their personal finances? I'm not a real "investor" (index funds only) but I am feeling more willing to forgo gains to be more risk averse just based on my own neuroses. Maybe I cash out and buy T-bills? Gold? Bullets? What's the non-crazy person equivalent?

I've always used value-tilted indexes, and am hoping that they will suffer less when the bubble pops. With that and a healthy dose of fixed income (which I chose years ago based on an assumption that the equity portion of the portfolio could drop 50% in a downturn at any time) I'm trying to stick to the plan and not try to time the market. Even though it very much feels like the bubble is near its peak (if not just p…

I would stay away from US fixed income due to low spreads, higher than usual inflation and a devaluing currency in forex.

I'd say ex-US international value stocks, especially EU, are a better hedge.

Re: Boom, bubble, bust, boom. Why should AI be different?

#78

Post by kergonath »

mattmaroon wrote: post #50

One difference is most of the companies listed are old, long standing, well-performing businesses. Pets.com had potential, Apple, Amazon, and Google had large amounts of revenue even 3 years ago. The bubble may deflate but every company mentioned will still be standing, whereas in 1999 many of them were basically Ponzi schemes relying on further investor dollars to subsidize losses. All this AI spending will hurt som…

> One difference is most of the companies listed are old, long standing, well-performing businesses. Pets.com had potential, Apple, Amazon, and Google had large amounts of revenue even 3 years ago.

Plenty of old companies spiked in 2000. Companies like Microsoft, Intel, or Cisco. Shovel sellers with a history of decent profits. I mean, the NASDAQ crashed, an it is not all made of start ups. You sound in denial, but there are more similarities than you seem to realise.

Re: Boom, bubble, bust, boom. Why should AI be different?

#79

Post by ben_w »

thousand_nights wrote: post #68
ben_w wrote: post #38

Earlier quoted context omitted.

How many people graduate from a US software engineering degree each year? About 100k? If they (the 100k in the US) earn $100k each in the first year, before gaining the skills to earn more, that's $10 billion a year, every year. If you can capture that market for next 20 years, it's worth $200 billion. Except… can you capture it? A junior dev is… not exactly someone you want connecting to your business-critical datab…

> If you can capture that market for next 20 years, it's worth $200 billion. that's like 5% of NVIDIA's current market cap. sounds like peanuts when you lay it out like that

Perhaps.

But that's just the USA's software developers in just their first year after graduating. Software devs are 1% of the US job market, the first year after graduation is (66-21=45 years, 1/45 ~= 2%) of a working life, the US is just 4% of the world's population/25% GDP.

For the 1% to matter, there have to be other jobs that LLMs can do as well as a fresh graduate. I don't know, are LLMs like someone the first year out of law school or medical school, or are those schools better than software? Certainly the home robotics' AI are nowhere near ready yet, no plumber, no driver (despite the news about new car AIs), would you trust an Optimus to cut your hair? etc.

For the 2% to matter, depends how seriously you take the projections of improvements. Myself, I do not. Looks like exponential improvements come at exponential costs, and you run out of money to spend for further improvements very quickly.

For the 4% to matter, depends on how fast other economies grow. 4% by population, about 25% by GDP. I believe China is still growing quite fast, likely to continue. Them getting +160% growth, and thus getting 2.6x times the money available to burn on AI tokens, over the next 20 years would be unsurprising.

All in all, I don't think the USA is competent enough at large-scale projects to handle the infrastructure that this kind of AI would need, so I think it's a bubble and will burst before 2030 because of that. China seems to be able to pull off this kind of infrastructure, so may pull ahead after the US does whatever it does.

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