If You Think AI Is in a Bubble, Think Again

Colin’s note: As 2024 approaches, we’ve been reflecting on 2023… and looking forward to what next year holds.

The rise of artificial intelligence has been one of this year’s top stories. From ChatGPT taking the internet by storm… to Nvidia’s stunning rise to prominence. If you look at the tech stocks this year that have soared, most are connected to AI.

And there’s a big question on everyone’s mind.

Will it carry on like this into 2024… Or is AI in a bubble that’s doomed to burst soon?

We get into it all – the rise of AI this year, where it’s going next, and the key players to watch – in today’s video. Click below to watch… or read on for the transcript.

Hey everyone, Colin Tedards here.

As we begin to close the door on 2023, it’s time we start to look forward to 2024. Many stocks that have skyrocketed in 2023 have been connected to artificial intelligence.

Google up 51%… Microsoft is up 55%… chipmaker AMD is up 100%… And the AI darling everyone has had their eyes on this year, chipmaker Nvidia, is up 230%,

The list goes on… And there’s one question on many investors’ minds.

Will AI stocks continue to work in 2024… Or is AI in a bubble, and we’re on the brink of seeing it pop?

Some investors believe this will happen.

Just this week, here’s what former Cisco Systems CEO John Chambers said in an interview with Investor’s Business Daily…

So much money is going into AI. There’s going to be a bubble. And there are going to be some real train wrecks within it.

Michael Burry – who was immortalized in the Big Short novel and movie – thinks that train wreck is coming soon in the semiconductor industry.

Just a few weeks ago he disclosed nearly half of his firm’s investment portfolio was short semiconductor stocks like AMD, Nvidia, and Broadcom.

That trade couldn’t have been more poorly timed. The SOXX ETF he was shorting is up more than 8.5% just over the past month.

The truth is, Burry – and many other investors – have been wrong about AI all year. But could they be right about AI as we head into 2024?

Will the tides turn, and we’ll see technology stocks start to head lower? After all, many other sectors like energy, consumer staples, and health care haven’t performed well over the past year.

Well, just this week AMD released its highly anticipated MI300 AI super-chip.

It’s the company’s answer to Nvidia’s wildly successful Hopper GPUs.

The truth is, we’ve known for months this chip was coming. In fact, back in July, I talked about AMD being one of three AI stocks you must own.

I talked extensively about the MI300 then. And I’m sure many of you have been aware of AMD’s entry into the AI chip market for quite some time now.

When AMD announced the chip was finally widely available, shares of the chipmaker soared more than 9%.

The truth is the market is still just beginning to grasp what’s going on in the semiconductor industry. Investors like Michael Burry and others like him are missing the bigger picture.

The ones who are buying semiconductors from AMD, Nvidia, and Broadcom aren’t you and me. Individual consumers aren’t the ones who are propping up the semiconductor industry.

We might be stretched thin when we go to the supermarkets or gas stations. Our wages might not have kept up with inflation. Some of us might be using credit cards to just get by.

But that’s not who’s buying AI superchips.

Google, Microsoft, and Amazon have hundreds of billions of dollars at their fingertips. And for each of these three companies, AI and data center revenue is the fastest growing part of their business.

According to many in the industry, demand for AI super-chips is expected to increase by 50% every year for the next five years. Largely because the customers of these chips have plenty of money to spend on them.

And there’s no indication these mega-technology companies are going to slow down spending on AI hardware. Just the opposite.

Take Google for example. 

We’ve known for months the company was working on its Gemini AI large language model from DeepMind.

Investors have been patiently waiting for Google to deliver a product that proved it was ready to compete with OpenAI’s ChatGPT. And this week, Google delivered.

Well… sort of.

The company released a video this week showing off Gemini and claims that it was better than ChatGPT nearly across the board.

The catch?

The high-end model Google touted isn’t available yet. And a smaller model for the phone isn’t ready for public use either.

But investors didn’t care. Shares of Google shot up more than 5%.

That’s right. A video about a product that wasn’t widely available sent shares of one of the world’s most valuable companies up 5% in a single day.

So what does all this mean? In short, it means the AI race is just getting started. Microsoft and OpenAI are going to shoot right back at Google with its next version of ChatGPT very soon.

What about Apple?

Google is about to ship a phone with a custom AI model built right in. Does anyone believe Apple won’t be investing heavily over the next year to make sure it doesn’t get left behind?

In many ways, the AI race hasn’t even truly begun.

With companies like Google releasing glorified trailers and waiting lists for its products, what’s going to happen when they actually start to roll these features out to their users?

That remains to be seen.

But what is crystal clear at this moment is one thing… The world’s richest companies are in an all-out war when it comes to AI.

And all of them have enough money to wage this war for a lot longer than investors realize.

That’s all for today. We want to know your thoughts. Do you think AI is in a bubble? Who do you think will get the next leg up in the AI race? Send us your thoughts at feedback@brownstoneresearch.com.

My name’s Colin Tedards. That was The Bleeding Edge for today. Have a great weekend, and I’ll see you again soon.