Since February 27, the start of the Iran war, the S&P 500 ex-AI beneficiaries is flat. The parabolic moves (since March 31) in the AI space have become a topic of debate and have drawn parallels to similar moves in stocks in the late ‘90s. While drawing parallels to the dot-com or TMT bubble makes sense, I believe the current situation is a combination of the dot-com bubble, pre-GFC-like froth (shenanigans) in credit markets (still building up; private credit), and the COVID-era meme-stock euphoria. Also, throw in the 1973 Yom Kippur War oil-market-like situation, embargo, and all.
Lots to unpack there.
I have refrained from commenting on the Iran war as it’s just too politically toxic to discuss publicly. All I will say is that if the Strait of Hormuz doesn’t open by the end of June, the world is staring at a major crisis with massive geopolitical implications and fallouts. Actually, even if the SoH opens today, there is trouble coming. We are past the point of a clean renormalization. So, I am putting money where my mouth is, I am raising cash in my personal portfolio, and putting on hedges.
That said, deconstructing where we are with the AI trade and projecting where we are headed requires looking at and understanding:
What is required for a modern AI data center?
The AI semiconductor supply chain and raw materials building blocks.
Current market situation of stocks benefiting from #1 and #2.
The inference to the agentic AI transition.
Evolving software ecosystem; SaaSpocolypse and all.
What will derail the rally?
To close out this article, I will discuss how to determine whether GPUs are gathering dust in warehouses, given that data center buildouts are getting cancelled or delayed.
Let me preface before diving in:
I am not bearish on AI. I am bearish on the current euphoria, expectations, and stock prices.
I think AI will drive high GDP growth 10 years from now, along with high employment and an exponential improvement in quality of life.
