...I am not an AI sceptic but I am sceptical that the present AI valuation deserves the premium relative to its delivery. Not surprising, we have had many points in stock market history wherein a favourite sector that turned into a 'hype' front run its actual potential (see this link below).
...there is a difference between thinking a sector will do well into the future and the valuation the sector has relative to its delivery. As I said before, I am not anti-EV nor pro-ICE vehicles, I firmly believe that EVs would replace ICE in totality maybe a decade from now, but I noted that EV/Lithium valuation since the past recent years have overshot their short to medium term outlook. Likewise, I think AI has also front-run in stock valuations just as it happened with internet, solar, EV and in due short term, a mean reversion process would also happen.
A lesson from history would suggest that the mean reversion process would entail a sharp correction first followed by a prolong period of price stagnation before a slow and gradual recovery many many years later (some of them decade long). Watch that link above and you would know what I mean.
The concern I have is that an AI crash is likely to be inevitable when poster child NVIDIA finally can't provide the exceptional growth the market has grown to expect. It is not about that NVIDIA won't produce great results, it would but its market valuation demands something that is of exceptional order. This is why Tesla cratered after years of outperformance because EV growth of 50% y-o-y could no longer be replicated. Now Tesla is rising again not because of EV but because it is inspiring market participants of its spruiked tech prowess (Robotaxi, Optimus robot), the Elon Musk factor.
An AI led crash would almost certainly herald a market crash of a large magnitude and plunges the US into a bigger recession than anyone would have expected. That concern has precedent in the 2000 dot.com crash and the 2008 GFC. More ominously, we have a AI over-exuberant mania similar to 2000 and a fragile US banking system similar to 2008, making a large systemic event with counterparty default larger than at any other time in history.
