Bubble.ai

🌈 Abstract

The article discusses the rapid rise of Nvidia, a semiconductor company that has become a dominant player in the AI chip market. It explores the potential AI bubble and the similarities between the current AI hype and the dot-com bubble of the 1990s. The article also provides insights into the challenges of timing the burst of a bubble and the long-term implications of the AI revolution.

🙋 Q&A

[01] The Rise of Nvidia

1. What is the current status of Nvidia in the semiconductor industry?

• Nvidia has gone from being a second-tier semiconductor company to the third-most-valuable company on Earth, with a dominant 80% share in the AI chip market.
• Nvidia's value has increased by $2 trillion since the release of ChatGPT by OpenAI in October 2022.
• Nvidia's core business, selling chips to data centers, was up 427% year over year in its recent quarterly earnings report.

2. How did the author's encounter with Nvidia's CEO, Jensen Huang, relate to the company's growth?

• The author met Jensen Huang at the Cannes festival and took a photo with him, not recognizing him at the time.
• Since then, Nvidia has added $1.3 trillion in value, while the author has had a "big year" of personal experiences.

[02] The AI Bubble

1. What are the key characteristics of the current AI bubble?

• There is near-universal agreement on the revolutionary potential of the AI market, which has driven the upward trajectory of AI stocks.
• The bubble is driven by a "self-propulsion machine" where stock price increases validate assumptions and encourage more aggressive projections, attracting more speculators.
• Exogenous factors like low interest rates have also fueled the bubble.

2. How does the current AI bubble compare to historical bubbles?

• The article compares the current AI bubble to the tulip mania of the 1630s and the dot-com bubble of the 1990s, where people bid up prices based on the belief that they can sell to someone else at an even higher price (the "greater fool" theory).
• The article suggests that the current AI bubble is more similar to the dot-com bubble, where a transformative innovation (AI) has emerged, and capital has rushed in, leading to increased valuations and speculation.

3. What are the potential consequences of the AI bubble bursting?

• The article suggests that the collapse of a major bubble can have far-reaching effects, as seen with the housing bubble in 2007-2008, which spread into the banking system and threatened the global economy.
• The article notes that the dot-com bubble meltdown mostly hurt people who could afford the risk, leading to layoffs and a mild recession, as well as second-order effects on industries like telecommunications.

[03] The Future of AI

1. What are the key questions regarding the future of AI?

• The article suggests that the important questions are not whether we are in an AI bubble, but rather "when will it pop" and "who will endure?"
• The article explores the similarities between the current narrative around Nvidia and the dot-com era narrative around Cisco, a "picks and shovels" play that saw a significant price increase during the bubble.

2. What are the potential long-term implications of the AI revolution?

• The article suggests that if AI is indeed a significant technological breakthrough, it will sustain long-term value creation, but the question is where that value will be realized.
• The article cautions that if Nvidia is seen as the "safe choice" in the current market, then it may only generate market-level returns, rather than the outsized returns of a true disruptive technology like Amazon.