History Says AI Could Be In A Bubble, But The Best Investors Are Not Selling

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These are equity and debt investors across public and private markets. Regardless of their sector or strategy, the number one concern everyone seems to have is whether AI is a giant bubble that could pop in the next few weeks. The implicit concern is that the current positive performance in the stock market is being driven almost exclusively by artificial intelligence, so if there is a market correction in that industry, then we could see the entire market fall drastically. Before we talk about AI and whether the industry is in a bubble, I want to call out Tom Lee’s recent comments that we could see stock market weakness over the summer due to potential rate hikes from the Fed, inflation rising while yields are rising, energy shortages still in the pipeline, and a wave of IPOs slated for the next few months, which could create too much supply. Here is Tom explaining his thoughts on CNBC : Maybe Tom is right, maybe not. Regardless, this is a difficult situation to navigate. Tom is highlighting there is more than AI to worry about for investors. The macro economy is facing a number of headwinds, especially given the continued war in Iran which has complicated major areas of concern like inflation, energy, and real wage growth. Let’s put aside the macro economic analysis though. We can zoom in on the AI industry to simplify our analysis and focus on the main point of conversation from investors. Here is the challenge with investing in AI right now: If AI is NOT a bubble and you refrain from investing, you will lag your optimistic peers who heavily allocate to the trend. If AI is a bubble and you pour your capital into the industry at the top, you will lose significant capital and be kicking yourself later for chasing momentum. But what if this is the wrong framing for how investors should look at the situation? That is the argument that Gavin Baker, Managing Partner and CIO at Atreides Management, made recently at the Sohn Conference . Take the memory stocks as an example. Gavin says he has been hanging on to these companies “for dear life” because history would tell him that now is the time to be selling these stocks. His commentary suggests AI stocks are in bubble territory. Baker would know because he has been watching semiconductors, memory, and other related industries for almost 30 years. However, it is his experience and historical knowledge that gives him hope that maybe we are not actually in a bubble. He says “ there’s one cycle where you absolutely did not want to sell and that’s the cycle we had in the mid ‘90s which is the last true capacity cycle that I I would argue we’ve had in memory. Based on that cycle, we may still be very early .” So…he is saying there is a chance. This is the problem with everyone constantly yelling “BUBBLE!” every time stocks accelerate higher. For the few times that the pessimists are right, there are examples where they were horribly wrong and investors were worse off if they chose to not invest behind a large, obvious trend. Pick your poison. Be pessimistic and risk the pain of regret. Be optimistic and risk the pain of loss. The talk of a bubble is not surprising though. Howard Lindzon shows how significant the semiconductor outperformance has been since 2020 . It has more than tripled the performance of the S&P, the Russell 2000, and the Nasdaq. This is just pure dominance. But anytime an asset class goes vertical, people immediately start getting very nervous. Gavin Baker acknowledged this during his Sohn interview when he said: “The last thing anyone should want is a bubble. Bubbles are terrible. They’re awful. They’re terrible to invest through. The aftermath of them is even worse. We don’t want a bubble. And unfortunately also the entire history of financial markets suggests whenever you have a profound new technology, whether it’s AI, whether it’s the internet, whether it’s the PC, whether it’s railroads, whether it’s canals, you almost always get a bubble because markets are efficient. Investors understandably become excited about this new technology. Michael Mauboussin frames it: there’s a breakdown in diversity. Everyone comes to believe in this [and] you get a bubble, and then that bubble funds the build out that the new technology required. That’s exactly what happened with the internet. I am optimistic that we may avoid a bubble this time.” I tend to agree with Gavin Baker. There is a ridiculous imbalance in supply and demand related to AI adoption. In addition, you have to remember that the general public does not even have access to the best models yet. Those are being hoarded internally by the model lab employees and their enterprise customers. This is important because Anthropic CFO Krishna Rao recently said the company sees increased demand when they release a new, more powerful model. This makes sense because people want access to the highest level of intelligence available. So if these model labs released their most powerful models, demand would be even higher than it is today. There will be no “popping” of a bubble unless supply outpaces demand and I don’t see any signs of that at all. The world’s best investors remain cautiously optimistic about the various companies supplying the infrastructure for this build out. Sometimes the hardest part of investing is doing nothing. And it seems like right now is one of those moments. As the bitcoiners say, “HOLD!!!” Hope you all have a great start to your week. I will talk to you tomorrow. - Anthony J. Pompliano Founder & CEO, ProCap Financial (Nasdaq: BRR) Dogecoin & Bitcoin Are Both Signaling Something Big? Jordi Visser is a veteran macro investor with 30+ years of experience and the author of the VisserLabs Substack. In this conversation, we break down why all-time highs in the stock market are flashing warning signs, how the Iran conflict is fueling a longer inflation cycle, why the AI semiconductor boom may be hitting near-term bottlenecks, and what Dogecoin is quietly signaling about the next crypto move. Podcast Sponsors Figure – True DeFi Democratized Prime to earn ~9% APY! They also have the lowest industry interest rates at 8.91% with 12 month terms! Take out a Bitcoin Backed Loan today and buy more Bitcoin. Check out Figure ! Figure Lending LLC dba Figure. Equal Opportunity Lender. NMLS 1717824. Terms and conditions apply. Arch Public - Arch Public’s cutting-edge algorithmic tools ignite profits, harnessing razor-sharp data analytics to nail perfect entries, exits, and risk management. Turn volatility into opportunity and do it hands free with Arch Public. 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