Comment by SlinkyOnStairs
4 hours ago
You're not modelling the contagion here. The problem is that while any single one isn't that big a share of the S&P 500, similar companies do make up a lot collectively. Excl some non-tech/AI firms:
NVIDIA Corp NVDA 8.02%
Apple Inc AAPL 6.53%
Microsoft Corp MSFT 4.84%
Amazon.com Inc AMZN 4.01%
Broadcom Inc AVGO 3.36%
Alphabet Inc GOOGL 3.32%
Alphabet Inc GOOG 3.09%
Meta Platforms Inc META 2.23%
Micron Technology Inc MU 1.71%
Advanced Micro Devices Inc AMD 1.19%
Oracle Corp ORCL 0.99%
That's 40% of the S&P 500.
And if anything happens to the AI bubble all of these go down together. While they won't all go to zero and cause a "-40%" overnight, Nvidia's rise is so meteoric that they will trigger a -8% and the rest's valuation has more than doubled since 2023. Even Apple, which isn't much of an "AI company", is still following the AI-tech hype.
If Nvidia eats shit, and the others go -50%, that translates to an overall ~-24% on the stock market.
Before any contagion outside the tech industry is considered. Look at the Dotcom Bubble and a -40% to -50% crash is quite plausible.
Unlike OpenAI or SpaceX, a lot of those tech companies are raking in the money. meta, google, amazon, apple all have huge cash flows. They will be buffered by this money - in dot com time, the money wasn’t already there, just the eyeballs. And while Cisco, which like Nvidia sold actual things, took a long time to regain their stock price, they made money selling actual things all along. On the other hand, there is more debt now than in dot com. I wouldn’t be surprised by a fifty percent decline, but it will be different than dot com for sure.
> And while Cisco, which like Nvidia sold actual things, took a long time to regain their stock price, they made money selling actual things all along.
This is the key comparison. It's not the "Pets dot com" side of the DotCom bubble, but the Telecom Bubble that followed. (All the AI startups that just repackage someone else's inference will go the way of Pets dot com, but their economic impact is minimal)
Certainly, Big Tech has massive cashflows. But those cashflows were priced into the 2023 valuations.
That is what makes the current valuations so ominous. Just a correction back to 2023 would be enormous. And as you note, a lot of these companies are taking on debt, dumping huge investments into AI. They're worse off than they were in 2023. Oracle may straight up go bankrupt.
I wish I could upvote this more. This is the point. Everything is so incestuous now that the problem isn't 2% here or 3% there, it'll be a catastrophe of epic proportions.
I do not want things to go kaboom, the CAPE index seems to indicate that what I want isn't relevant.