Is the current AI investment boom going to end in tears like in 2000–01? Or are things different this time around? Undoubtedly, investors and economists should be extra skeptical whenever they hear these words: things are different this time.
That said, it does not necessarily mean we are bound to relive the events of the dot-com implosion in slow motion at some point. Undoubtedly, things always do tend to be different in some way or another. But in terms of the euphoria and potential fear that could follow, I do think there are different ways to “correct” the excesses.
Arguably, short-lived bursts of euphoria surrounding a boom could be followed by corrections, lots of corrections! Also, there might be a mild bear market (yes, I said mild, which is often not used to describe bear markets!) to get rid of temporary froth.
And, of course, perhaps stocks could go nowhere for a year or two so that the profits can catch up. It’d be fine with me if stocks hit the pause button for two or three years until there’s more data on the profitability of the big tech firms’ big bets.
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A crash doesn’t have to be the endgame to this AI surge!
Either way, a crash isn’t the only way down. One could take the escalator down gradually, and perhaps there are a few floors higher that stocks can reach! In any case, nobody knows how things with the AI boom will play out. There is real innovation here, and the profitability prospects certainly look better than in the late 1990s, during the internet revolution.
Make no mistake, the big tech firms are spending serious cash on AI capital expenditures (capex). We’re talking $100–200 billion or so, and that figure could rise in 2027 or 2028. Of course, it could go down, too. We’ll have to wait and see. Regardless, there’s potential and high expectations among the smartest people in AI research. However, the market feels more or less skeptical.
The recent “wreck” in tech seems to be a reality check of sorts, which, I think, could prevent a vicious meltdown later (that’s a good thing!). Of course, that’s provided that we don’t see skeptics turn into table-pounding bulls overnight due to some AI innovation (they are coming in fast, eh?) that changes the world.
Alphabet: Real AI innovation here, but will it be worth it?
Alphabet (NASDAQ:GOOGL), which is the parent of Google, recently dropped Lyria 3.0, an impressive model that makes AI-generated music. I’ve had the chance to try it. And I went in skeptical, to say the least, especially since prior AI music makers have been less than impressive. I must say that Lyria is a different beast.
It’s not just good, it’s scary good. And it makes me think of the potential impact such a technology, which is only getting better by the way, will have on the music industry. To me, AI models like these suggest there’s more to AI than hype. But just because it’s the real deal does not mean there can’t be a couple of vicious crashes in individual names, like the AI infrastructure darlings. So, with that, do be a value-minded value investor.
While there are a lot of bubbles and overvalued AI plays, I do think Alphabet is not one of them. Arguably, I’m more inclined to view Alphabet as a steal of a deal at 28 times trailing price-to-earnings (P/E). Whether it’s Lyria or the rise of Astra, Genie, or its agentic innovation, I’m genuinely blown away by Google’s recent releases. In my view, why not just stop at shares of Alphabet right here at such a cheap multiple?
So, I believe the AI boom is real, but there is hype, and that can lead to pain if you’re not careful where you invest within the space.
