When Will the AI Bomb Burst?

 

For decades, Americans were told the S&P 500 was the safe, diversified choice.  But something changed. The S&P is no longer a diversified basket of American business.  It's a tech fund in disguise.  Goldman Sachs reports: Today, AI focused stocks make up 45% of the entire index. One company, Nvidia, carries as much sway in the S&P 500 as the bottom 224 stocks combined.  And right now these tech companies are pouring hundreds of billions of dollars into AI data centers. But for every dollar they spend, they're only making pennies back.  What's worse, much of this spending is circular.  Nvidia sells chips to OpenAI. OpenAI spends that money with Microsoft. Microsoft buys more chips from Nvidia. The same dollar gets counted as growth two or three times.  We have seen this movie before. The railroads in the 1800s. The telephone companies in the 90's. The dot-com crash in 2001.  Everyone builds too much, too fast — betting on a future that takes longer to arrive than the money can survive.  Michael Burry, famous for calling the 2008 crash, says this looks just like 2001.  When that bubble burst, the tech-heavy Nasdaq collapsed. It took 15 years to recover.