Boom, bubble, bust, boom. Why should AI be different?

A couple of years down the road, their useful applications still are summarizing text, transferring style to text, generating code under strict supervision, and generating images that need retouching.

That’s a lot to get out of a tool, but it’s dubious that investors were pouring trillions of dollars into these things thinking of automating away junior software engineers and low end design work.

Edit: I forgot their other niche, that of generating homework and school test answers

The internet was amazingly valuable, but many of the early companies failed. Investing in internet companies was hardly a sure bet.

The same could be said for the internet. But, and I know this will be hard for younger readers to believe, I seem to recall the value proposition of the Internet being more immediately apparent at the time.

the real answer is that the applications for the military, surveillance, and population control are proven, and the pathways to scale those capacities are clear, so the money will pour in no matter what. the implication is that we had better come up with some more consumer/humanity friendly applications that create comparable value, or that is all we will get.

Not really. I mean, not only. The value of the web is immense. And yet, the dot-com bubble was indeed a bubble. What matters is the value in the short term compared to the value of the companies in the current context. Even if AI is huge 20 years from now, it can still crash dramatically tomorrow.

How that washes out on net we'll have to see. I'm not gonna pretend I know more than anyone else. Just keep in mind that a major difference between now and 2000 is companies stay private a lot longer. An IPO forces you to open the books and sustain public scrutiny of the broad investor class. A still-private startup only needs to convince one funder of their value. That inevitably leads to higher variance and a greater risk of failure. That doesn't mean the whole sector is necessarily a bubble, but if it is, it can be sustained a lot longer without us knowing. A small number of people with $50 billion they need to park somewhere and no other obvious options can keep shitty ideas afloat in a way that wouldn't be possible if they had to be subjected to broader exposure. We like to believe people with $50 billion can't be wrong, but the wisdom of crowds always beats the wisdom of individual genius.

Heck, AI itself taught us that same lesson!

This seems like a variation on the President's (and my CTO's) process of 1. go on record both supporting and denouncing all positions, but commit to none, 2. wait... 3. spin your previous wisdoms based on the actual outcome. A super-inconsistent & confusing track record is actually a major asset when executing this strategy!

AI if it gets better will be thinking / intellectual work which is a different category.

I remember in the 90s people would say the internet will bring instant conveyance of media including video and people were like yeah right I can just about get one page of crappy text in a minute over the unreliable dial up modem. It's like that now with AI thinking.

This sort of approach is pretty aggressive and definitely contrarian to the general market, but some alternatives to mitigate the coming pain (if you believe it's near) would be shifting into a more liquid position to take advantage of tightening liquidity, i.e. big companies may see their shares tank but will likely still be able to service their debt. In the meantime you'll miss out on a market that still seems pretty strong.

Doesn't this also describe Thinking Machines Lab?

It's also not doing peoples' jobs for them, for the most part. AI's supporters do very loudly proclaim this, though.

From what I can tell at this point it's a solution looking for a problem. Incredibly impressive, not so useful

Plenty of old companies spiked in 2000. Companies like Microsoft, Intel, or Cisco. Shovel sellers with a history of decent profits. I mean, the NASDAQ crashed, an it is not all made of start ups. You sound in denial, but there are more similarities than you seem to realise.

Diversification is the bedrock of portfolio management, meaning owning a range of assets that collectively perform acceptably under a range of scenarios. But it’s generally not sexy, not something you catch individuals bragging about - avoiding permanent loss of capital.

Think about what risk you’re willing to take, in the context of your job/career prospects, current investments etc.

These are things for you to decide. Wouldn’t trust anyone who says buy x without knowing your individual circumstances.

What I can say is there are consistent patterns for many successful investors, and the media will tend to focus on the outliers / lottery winners, which by definition are difficult to emulate / replicate. Be wary of survivorship bias and the narrative fallacy.

I'm not really an investor btw, this is just my intuition. I'm curious what others here are doing.

Particularly as it seems contagion is more AB’s more likely. That the implosion won’t be limited to the mag 7.

Gold is only for very rich people if you want to have something in the case the whole economy goes to the bin.

Bullets if you are paranoid.

Edit: Notably, you don't have to fully stop investing in the SP500. If you were previously 60% weighted towards the SP500, you can still reduce your exposure by changing that to 20%, or something like that.

For this round I've bought (well, bought and sold, and now waiting to buy via an order) puts on a semiconductor ETF. Since I own some of the stocks, if it goes sky high still I win, if it crashes I win, and if nothing happens I'll have to sell it 30 days before it expires to avoid the theta decay, which starts to really bite in that last month.

No one knows anything - which is the environment I'm learning to operate it.

A very conservative investor, say a boglehead or a 'value investor' would tell you to buy in an index fund and not look, unless you know for sure what you are doing and have done insane research on a company and it's priced low. They would say, buy VTI or VOO if you don't need the money within 5 years, and stop looking at it. Oh, and DCA into it versus all at once.

LLMs can be useful tools in the right situations and the valuations for companies involved with them can be wildly and irrationally inflated at the same time.

For the last most explosive bubbles -- "dot-com" (~2000) and "housing" (~2008) -- you can go back and find all sorts of warnings and critiques and fretting and skepticism in newspapers, academic and industry journals, blogs, television, personal ephemera, etc. And not too far from almost all the examples you find, you'll also find somebody blowing off the skepticism.

The tricky part is that you can more or less find similar dialog in all those sources even when there didn't turn out to be a looming collapse. There's just always people worrying about collapse or hard correction when the markets are running hot and always people blowing them off, and sometimes worriers prove right. Eventually. And sometimes they don't, and the underlying economy either catches up with the market or government policy successfully props it up for long enough that some other concern dominates or some other industry can absorb the over-allocated investment.

Basically, it turns out your heuristic for spotting a bubble faces too much noise and isn't actually all that informative at all.

Based on what? We're only seeing linear improvements for increasing spending. There's no new algorithm ideas on the horizon, just more and more hardware, in the hopes that if we throw enough RAM and CPU at the problem, it will suddenly become "AGI."

No one has their eye on power budgets or sustainability or durability of the system. The human brain has such a high degree of energy efficiency that I don't think people understand the realities of competing with it digitally.

The main problem "AI" seems to solve is that humans get bored with certain tasks. The language models obviously don't, but they do hallucinate, and checking for hallucinations is an exceedingly boring task. It's a coffin corner of bad ideas.

The internet is a medium, an interconnection of autonomous computer networks

A "web" of hyperlinked HTML pages is one use of an internet

However this internet is more than a handful of popular websites incorporated as companies

Perhaps that's why it was called the "dot-com" bubble and not the "internet" bubble

You see that same pattern with AI now. Products are being provided for free or nearly free, and plenty is being spent on marketing.

> All this means two things to us: 1)The AI revolution will indeed be one of the biggest technology shifts in history. It will spark a generation of innovations that we can’t yet even imagine. 2) It’s going to take way longer to see those changes than we think it’s going to take right now.

There is also a customer adoption curve of technology that lags far behind the technologist adoption curve. For example video on the Web failed a long time, until it didn't, when Youtube began to succeed. The problem became "boring" to technologists in some ways, but consumers gradually caught up.

AI is accelerating "let them eat cake" at rates never seen before in history, so I imagine the violence will follow soon after

So the way I understood it, productivity, efficiency and quality gains can increase GDP year over year.

Say we are a country of 1 person. If that person can make a car in 2025, but in 2026 manages to make both a car and a house, the GDP has more than doubled. Doesn't matter that nobody paid the money for them.

Another weird thing is, say that 1 person country makes a car in 2025, and in 2026 makes a similarly priced car, if the car is higher quality, it counts as a higher GDP, because they'll measure its value as greater than last year's model, even if it sells for the same price, because the old model would now be worth less.

You have a hundred people, they have a GDP of N. Tomorrow, their productivity doubles because of a technological innovation. Your GDP is 2N.

Prices matter extensively to the rich and poor. The cost of a given compute capacity has gone from "literally the entire United States can't afford it" to "my lightbulb has this much compute because it's cheaper than choosing a dumber processor".

What happens tomorrow if eg ChatGPT 5.1 performance becomes doable for $500 of tech? $50? Swap this for grain harvesting, waste bin collection, etc if you don't like the LLM case.

Think about the unsatisfied needs and desires most people have. In extremely low income areas, it may be a roof over your head or knowing where your next meal comes from. Moving up a tier, it might be the ability to send your children to education or better clothing. In wealthier areas it might be things like a better car or higher quality food even though you're not in danger of going hungry. For the extremely wealthy it might be more leisure time, art, and new experiences.

When GDP increases, broadly, those are the areas you see expand. Looking at life today in a baseline American household, the things which are mass produced are far more available and affordable than they were a century ago - in the 1930s households spent about 10-12% of their income on clothing.

Sadly, the rate of improvement for non-mass-produced items like college tuition, medical care, and especially housing has ballooned compared to median income, so life doesn't feel inexpensive, certainly, but GDP has a lot of room to grow in a lot of areas.

Why not? It has been changing forever. It was on a pretty consistent upward trend in the US since there was a US, roughly doubling since 1790, but it has started to decrease in the last few years.

Total GDP can keep rising so long as technologist can improve efficiency through robotics, inventions and scientific breakthroughs.

GDP just describes peoples amount of activity. People will always build bigger buildings or monuments (see egypt pyramids, dubai skyscrapers, cambodia angkor wat). These are actaully not inelastic as megaprojects will quickly hit real limits regardless of the amount of capital. (I can always add 10 more floors to the tallest skyscraper, or 10 feet to the longest wall, or 10 facets to the most ornate church)

There has never once in history been a point where people decieded that they where going to stop innovating or producing permanently. This is equivalent with death.

So the people with the most money at some point will decide to build things which they spend all their money on which increases GDP.

Also the actual "number" of gdp if heavily controlled by USA inflation rates. So we should always look at gdp in regards to inflation adjusted dollars to get a clearer picture.