The US AI Bubble Reminds Me of the Eve of China's Real Estate Collapse

https://jonathancc.substack.com/p/the-us-ai-bubble-reminds-me-of-the

by tenchuxxx • 8 months ago

24 21 8 months ago

jonathancc.substack.com

markus_zhang2• 8 months ago

If the AI bubble broke, what’s a safe haven? US gov bond? Gold?

extropic-engine2• 8 months ago

friends. community. family

markus_zhang2• 8 months ago

Hopefully it doesn’t dip to that level.

pfannkuchen• 8 months ago

Possibly companies that have performed poorly in the market recently due to being labeled an “AI loser”? I imagine that penalty would go away, though in a general market panic they would also be hit (just not as bad and would recover faster, probably).

alextingle• 8 months ago

I think of anything denominated in USD as a big risk right now. Trump is dead set on burning away the USD's privilege of being the world's reserve currency. If anything it seems like it's a deliberate policy to devalue the dollar, in order to improve US domestic competitiveness.

So, maybe rest-of-the world bonds?

Ccecil• 8 months ago

Canned goods? Camping gear?

djohnston• 8 months ago

I also believe it’s a bubble but how can it be a bubble if everyone thinks it’s a bubble? It seems like bubble is the general consensus but there hasn’t been something like a “pop” yet.

garciasn• 8 months ago

There are always signs of collapse before something collapses; we, somehow, choose to ignore those signs except in hindsight.

HarHarVeryFunny3• 8 months ago

I guess the trillon dollar question is what might be the signs that we're at the top of this bubble.

Looking at a couple of prior bubbles ...

In the subprime housing crash of 2007/2008, lending practices got so bad that there were low-doc and no-doc loans (aka "liar loans") where you could get a mortgage without any evidence of being able to repay it.

Immediately prior to the dot com stock market crash of 2000, EVERYONE was talking about how much money they were making. At work it was insane with people monitoring their stock portfolios all day, reporting how much money they'd made that morning, etc. Tons of people were beyond "all in" - buying on margin.

So what about now with AI market caps, infrastructure builds, etc. Are we in the bat shit crazy "all in" stage yet, or can it conceivably go further?

missedthecue• 8 months ago

I don't see how it can be a bubble (or at least a risky one) without much debt. Places like Google and Meta profit $100B a year from operations and are funding most of this from cashflow. The risk is that they have to write down a bunch of overbuilt data center assets in a few years, but lenders won't be going under because there aren't any lenders involved. And without lenders being at risk, the system isn't at risk.

*There is some leverage. Coreweave has borrowed a bit for example. But none of this is really systemic and no one is levered to the eyeballs in the AI space.

twosdai• 8 months ago

I think some of the valuation, or agreements made right now are based on future cash flow promises, which are assumed to be higher.

jrehor• 8 months ago

There is a bit of nuance to the cashflow. That $100 bn cashflow was used for something else before AI: mostly share repurchases and M&A. Now it's being redirected to capex. That removes some of the support for the stock prices; there's no longer a multibillion dollar bid every year for GOOG / META / MSFT etc. stocks.

But you're right that this shouldn't affect lenders, unless we see a lot more borrowing (which is coming, BTW: ORCL and GOOG just issued $10+ bn debt each for AI data centers).

dh2022• 8 months ago

Whatever this is (bubble/real investment) won’t crash right away. The reason is spelled out in the article: the data center buildout is still being financed by cash flow from operations. The buildout will start to cause problems when it will be a lot of it, mostly financed with debt and the debt close to maturity.

(BTW-there is one other item in the article that counters the collapse narrative: Meta being able to 100% control the AI buildout with only 20% payment - the other 80% is financed by a partner. If anything this type of deals gives big Tech even more run-way to get a business model working. The end is not near.)

lifestyleguru• 8 months ago

The benefit of crypto bubble was one could buy bitcoin 10 years ago, export it offline, and forget it until now. Is there any single benefit from AI bubble for an average loser who missed buying the US top 5 stocks?

mensetmanusman• 8 months ago

Except everyone who studies demographics knew Chinese real estate would collapse.

With AI you have to predict whether or not people will make useful tools from this technology or whether we have peaked and nothing will be new.

The US AI Bubble Reminds Me of the Eve of China's Real Estate Collapse

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