AI Is More Than a Fad

Colin’s Note: Is the artificial intelligence (AI) boom just another dot-com disaster waiting to happen?

With the state of headlines in the mainstream financial news lately, I wouldn’t blame you if you thought so.

AI reminds us of the dot-com bubble because we’re seeing investment into quite possibly the most groundbreaking technology of our time reach a fever pitch – just like we saw in the early 2000s with the rise of the internet.

And just like then, the key is staying smart and staying disciplined… And remembering that this technology is going to change lives. We’re in the early stages right now. But someday, just like the internet, AI is going to be everywhere.

The internet was more than just a fad. AI is no different. There will be failures along the way. AI’s success won’t be a straight line up.

But it’s the most exciting technology we’ve seen in decades… And the investment opportunities there are only just beginning.

Bleeding Edge subscribers, we are in the second week of what I believe will be the most important four-week stretch that the stock market will see in 2024.

And the news media is already out with the headlines…

The AI Hype Is Fading. – The Washington Post.

From boom to burst, the AI bubble is only heading in one direction. – The Guardian

The AI craze in stocks is like a dotcom bubble. – Jeffrey Gundlach

Could the AI skeptics actually be right this time? Have tech stocks run out of fuel to continue to move higher?

After all, we heard from Taiwan Semiconductor (TSM) yesterday. Shares of the chip maker are down over 10% this week alone.

TSM is the exclusive fabricator of the red-hot Nvidia chips that are being bought up by the AI companies out there. If AI was so hot, why did TSM shares go down so much?

We also heard from ASML. Like TSM, ASML has a monopoly on the cutting-edge lithography equipment required to make bleeding-edge AI chips that Nvidia and others make. Shares of ASML are down nearly 9% this week alone.

If you look at the stock charts and read the headlines, you’d likely be convinced that the AI bubble is about to burst. But like most things in life, really the devil is in the details.

TSM’s CEO said this about the company’s products. Smartphone chips – which still make up 38% of TSM’s business – decreased by 16%. Demand is just gradually recovering.

Personal computer demand was described as being slow to recover. Traditional cloud server demand was described as being slow and lukewarm. Internet of Things (IoT) and the consumer remain sluggish. And finally, automobile chip inventory continues to be overstocked.

The one bright spot was AI.

TSM said AI-related data center demand is very strong, and that shouldn’t surprise anyone who follows technology and understands what’s at stake here.

AI reminds us of the dot-com bubble because it quite possibly is the most groundbreaking technology we’ve seen since the internet. The idea that human knowledge can be democratized into a computer system is actually groundbreaking.

Many times over the past year we’ve highlighted stories here on The Bleeding Edge about how AI is not only changing lives, but it’s saving them.

It’s changing how big companies operate, too. Google’s two-trillion-dollar search engine is facing competition for the first time in decades. Apple is being forced to innovate on a phone that has essentially been the same for a decade as well.

Other companies like Adobe are having to revamp entire product lines. Even the chipmakers, like AMD and Intel, are scrambling to come up with designs that can compete with Nvidia.

Over the next several weeks, all of these companies will be reporting earnings.

With inflation and interest rates directly impacting the consumer, I don’t expect the numbers to be good at all.

Remember, the investors who believed in the internet during the dot-com boom were ultimately right. But those who forgot the basic rules of investing got burned and ultimately missed out.

Stop losses, take profits every once in a while, and diversify your portfolio. These aren’t just buzzwords thrown around to be ignored. Discipline is going to be key going forward.

Over the years I’ve seen many investors – and friends of mine, even – get excited about themes like cryptocurrency, electric vehicles, NFTs, marijuana stocks, 3D printing, alternative meats, you name it, only to get burned out when the trend reversed.

AI is more than a trend or a fad, but it doesn’t mean it’s going to be a straight line up. Just like the dot-com boom, there will be plenty of failures along the way. But AI is the most exciting technology we’ve seen since the internet age, and in many ways, great investment opportunities are just beginning.

That was The Bleeding Edge for Friday. Have a great weekend. I’ll see you again next week.