Are We In An AI Bubble?

3 Tricks Billionaires Use to Help Protect Wealth Through Shaky Markets

“If I hear bad news about the stock market one more time, I’m gonna be sick.”

We get it. Investors are rattled, costs keep rising, and the world keeps getting weirder.

So, who’s better at handling their money than the uber-rich?

Have 3 long-term investing tips UBS (Swiss bank) shared for shaky times:

1. Hold extra cash for expenses and buying cheap if markets fall.

2. Diversify outside stocks (Gold, real estate, etc.).

3. Hold a slice of wealth in alternatives that tend not to move with equities.

The catch? Most alternatives aren’t open to everyday investors

That’s why Masterworks exists: 70,000+ members invest in shares of something that’s appreciated more overall than the S&P 500 over 30 years without moving in lockstep with it.*

Contemporary and post war art by legends like Banksy, Basquiat, and more.

Sounds crazy, but it’s real. One way to help reclaim control this week:

Skip waitlist.

_{*Past performance is not indicative of future returns. Investing involves risk. Reg A disclosures: masterworks.com/cd}

I’m a fan of AI. I’m typically an early adopter of new technology in general. It has bit me in the ass a few times, but that is a story for another time lol. You’ve probably noticed AI is everywhere these days. I mean EVERYWHERE! On your phone, your email, even your grocery store checkout. And if you’ve been watching the stock market, you’ve definitely noticed AI-related stocks are continuing to shoot to the moon. Right?! Companies like Nvidia, Microsoft, and Google are just dumping money into artificial intelligence like there’s no tomorrow.

But there is a question keeping a lot of us regular retail investors up at night. Is AI Investment a Bubble or the Real Deal? What Retail Investors Need to Know? You know, kinda like the dot-com bust that left a lot of folks holding worthless stock back in the year 2000?

Back in they day investors and companies poured money into these “dot-com” companies. Many were just based on “the idea” of a business! These optimistic business plans that hypothetically would explode into profits or market dominance. Unfortunately it was all hype! Many of these companies failed to deliver and success just wasn’t realized. I mean remember the rise and fall of Pets.com? Sometimes said to be the worst IPO ever!

I get it. The fear is real. We’ve all heard the stories about people who lost their shirts when the market crashed. Nobody wants to be that person who bought in at the peak right before everything came tumbling down. So let’s cut through the hype, the fear, and the tech bullshit to figure out what’s actually happening with AI investments and what it could mean for you.

The Numbers Are Actually Insane

First, let’s talk about the sheer scale of what’s happening right now. We’re not talking about just a few companies placing some bets on new technology. This is a full-blown investment supercycle, and the numbers are honestly kind of mind-blowing. A supercycle is defined as a sustained period of expansion, usually driven by robust growth in demand for products and services.

According to recent industry analysis, major tech companies are planning to spend around $1 trillion on building and upgrading data centers alone. That’s trillion with a T! These massive facilities are the backbone of AI technology, the places where all those ChatGPT conversations and AI image generators actually happen.

And it gets bigger. When you add in all the IT equipment, servers, chips, and hardware needed to make these data centers work, we’re looking at another $1 trillion to $2 trillion in spending. The total real estate value being created? About $1.2 trillion.

To put that in perspective, that’s more money than the entire GDP of most countries. This isn’t just a trend. This is a fundamental reshaping of how technology infrastructure works.

What’s Driving All This Spending?

Here’s some of what’s happening behind the scenes. Or, BTS as the kids would say lol. AI workloads, which is just the fancy talk for “the actual computing work AI systems do,” currently take up about 25% of data center capacity. But industry experts project that number could hit 50% by 2030. That’s only six years away. It’s gonna come quick!

If we think about what that means, half of all the computing power in these massive data centers could be dedicated just to AI. That’s a ginormous shift, and it’s why companies are racing to build that capacity right now. Nobody wants to be left behind, right?

The sector is expected to grow at about 14% per year through 2030. For comparison, that’s way faster than any of the more traditional industries. And right now, these facilities are operating at about 97% occupancy, meaning they’re pretty much maxed out. About 77% of the new construction is already spoken for. This is happening even before the buildings are even finished. So, on paper, those numbers look pretty healthy.

So Where Does the Bubble Talk Come From?

Here’s where things get interesting and a could be a bit messy. While some analysts look at those numbers and see solid fundamentals, others are waving those red flags like Bruce Dickenson waving the Union Flag during the Trooper lol

The skeptics point to a few concerning patterns. First, there’s what some are calling it “circular financing.” This is like when Company A invests money in Company B, and then Company B uses that money to buy products from Company A. It creates a loop that looks good on paper but might not reflect real demand. Ummm, it’s kinda like me giving you $20, only so you can go buy me a gift, lol.

For a more practical example, chip maker Nvidia has committed to investing up to $100 billion to help OpenAI build data centers. OpenAI then turns around and uses that commitment to buy millions of Nvidia’s GPUs for those facilities. Similarly, Microsoft invests in AI companies that then agree to use Microsoft’s computing power. See how this is the circle?

The second red flag is the actual revenue. Despite all this investment and crazy hype, most AI companies aren’t actually making much money yet. I mean the idea of a for profit business is to make money! Most of these AI companies are actually burning through the cash, many offering services below cost to just to get people hooked, hoping they can eventually raise prices later or dramatically cut costs in the future. It’s kind of like when we had a new pizza place open here in town. It was offering an entire “16 inch one topping pizza for only $5 to get us customers in the door. Great when they first started, but they just couldn’t survive when they had to pay increased prices for ingredients, then offered only cheese for the $5 price, and increased prices to us customers to add that first topping?

Some researchers, like Julien Garran from UK firm MacroStrategy Partnership, have gone so far as to call the AI spending ecosystem “the biggest and most dangerous bubble the world has ever seen.” He argues that most AI companies are stuck in a permanent cycle of needing to raise more money because they can’t figure out how to actually turn a profit.

His point? When you run out of new investors willing to throw money at the problem, the whole thing could come crashing down.

Read to the Full Article Here

Other Stories

Thanks again for following along! Keep those Horns Up, my friend 🤘 🤘 And please share this newsletter with those you think would find value!