In the 19th century, major gold rushes took place in Australia, Venezuela, Greece, New Zealand, Brazil, Chile, South Africa, Canada, and the United States. While gold mining proved to be unprofitable for most diggers and mine owners, some people made huge fortunes. But who were those people? Merchants of all kinds, mostly shovel and wheelbarrow sellers, and transportation facilities. One wouldn’t have been surprised to see the stocks of such companies trading at lofty valuations if they were trading, why not, right? However, that never ends well over the long run.
In recent times, not so long ago, we witnessed the internet gold rush. I witnessed it firsthand and was quite intrigued by how the market was trading in the late nineties. Luckily, I didn’t have much cash to invest as I had just graduated from college, and poor me was more worried about my monthly expenses. So, when someone asks me how I survived when the dot-com bubble burst, and the markets crashed, I smile and say: I didn’t lose my job and was sitting on cash. Oh, why quibble over such semantics!
Note
After Fed Chair Alan Greenspan said there was “irrational exuberance” in December 1996, the Nasdaq rose 40% in 1998. It then accelerated 86% in 1999 and accelerated even further to a 24% gain in just over two months to start 2000. Then everything fell apart.
Joking aside, the stocks of companies providing the plumbing of the internet - Cisco (routers and switches), Corning (fibre optics), Global Crossing (subsea fibre-optic network), JDS Uniphase (fibre-optic communications components, lasers, and test equipment), and many more - were hot commodities and went parabolic in the late nineties.
Global Crossing went on to file for bankruptcy in 2002(the fourth-largest in history). It got caught for recording sham transactions as sales and other fraudulent accounting practices. The stock prices of the other companies have languished since. However, companies with strong business models, such as Amazon, which leveraged the internet to provide products and services, survived and thrived.
A similar story played out with the evolution of mobile networks. Did investors in Verizon or AT&T make out big? No. Companies that built an ecosystem leveraging the mobile revolution thrived. Apple is the poster child of that. Then came the cloud revolution. While cloud providers made hay, the Apps and SaaS companies minted money with stellar margins.
So, where am I going with this history lesson?
Those who cannot remember the past are condemned to repeat it.
Let’s look at an interesting chart I found on X from @apoorv03:
Ten years ago, the “V” of the value accrued for Cloud was inverted, like the one for AI. The point I was trying to make was that the AI value accrued will also look like the cloud V in the future. When? Five years? Ten years? That is anybody’s guess. However, as AI inference goes mainstream, the process will start. The key is to stay disciplined and not chase the hype driven euphoria. The big implication here is that chasing the semi players from here on forward will generate lower returns for shareholders.
Skate to where the puck is going to be, not where it has been.
In this post, I will cover:
AI Bottlenecks.
A GPU packaging substrate manufacturer on whom Nvidia is dependent.
Lumentum (LITE) - LITE has been added to the S&P500 on March 23, and Nvidia has invested $2 Billion in LITE recently.
