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Roger (100%)
Hi Carole, the bubble around llms and AI is really something to behold. I've been in the investment business since 1982 and I have never seen anything remotely like it. The there are several elements that are worth paying attention to. The first is the scale, roughly $1 trillion invested in the United States since the middle of 2022 so that's three and a quarter years, $1 trillion which is roughly, well, I think it's larger than all the money ever invested in technology before this cycle. So that's an issue.

The scale is just huge. The second element of it is that the protagonists are the big tech companies, or seven of them in particular, that collectively account for 34% of the market capitalization of the s and p5 100 in the United States, 34% seven stocks. So that is a source of systemic risk, because this trillion dollars of investment has, for many of these guys, been a huge source of revenue. They essentially invest.

And I put that word in quotes in startups like open AI, which immediately turn around and spend that money on the goods and services provided by the big tech companies. So in the case of Microsoft, Oracle and Amazon, that is in cloud services for Nvidia, it's for chips. For AMD, it's for chips. So this circular thing of company, a which is a huge company, puts a billion or $10 billion notionally, into a startup that then turns around and buys its goods and services.

That's something that needs to be deeply frowned upon, if not illegal, and yet it is the entire basis of this thing.

So the actual end user revenues associated with llms today is on the order of $40 billion which is a tiny number in comparison to a trillion invested. It's almost inconceivable that the trillion dollars will provide a reasonable rate of return, and so it does seem that it's only a matter of time until this whole thing blows up. Now, I think the game that these guys are playing is different than the traditional one that you see on Wall Street. I think they know they're in a bubble, and I don't think they care.

I think they know it's going to blow up. I don't think they care about that either. I think that they believe that they have conned governments, particularly the US government, into essentially backstopping any losses that they have.

The CFO of open AI, Sarah Friar, gave the game away a week ago when she said that she was thinking that there was a role for the government to play in backstopping the future investments of companies like open AI, that is a terrible idea, you know.

So are we in a bubble? Definitely. Do we know when it's going to end? I don't think we have any idea. You know, everybody on Wall Street is excited about this bubble. 34% of the market value is in the big companies. The private ones have notional values that would make them, you know, fortune, 200 companies.

It's the whole thing is crazy, but it can keep going on because, you know, there's just no way to tell when a bubble is going to end. When it does, though, it's going to end with, I think, a bang. And I believe that the government will probably try to bail these guys out, which would be a terrible idea, but politically, I think that's where things are right now. I hope this is helpful. Take care.


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