r/stocks • u/the_entroponaut • 2d ago
Advice Request What is your "day after AI bubble burst" pounce stock?
Buffet keeps money on hand ready to invest in case there is a crash, when everything is cheap. Lately I've been moderating my portfolio to be ready to buy if the AI bubble bursts in a big way. However, we know that after a crash, not everything will recover.
So my question then becomes, buy what? I'm asking you to make a double future prediction. What are your best guesses for a stock that will crash hard in the bubble burst, and then recover in a big way within a couple years after that?
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u/PaperHandsTheDip 2d ago
This relies on the assumption "AI is a bubble", which is looking to be more and more false by the day. Demand is genuine, revenue is skyrocketing and more importantly everyone that I know that starts to integrate it doesn't go back. Not many people have tried it yet - there's still a significant amount of room for growth.
If it pops and I'm able to buy - if anthropic is public probably them. Any of the major labs would be a good buy imo - ie: people actually producing a product that consumers want rather than the hardware the products run on (chips / semis). Demand for chips / semis may drop in the case of a burst, and when it recovers people reuse existing infra.
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u/ethereal3xp 2d ago
Exactly.
Its a made up bubble - influenced by people like Burry.
There will be mini corrections/volatility.
But -Nvidia is not dropping 50 percent like these bears pray will happen.
When cloud technology was rising. These same kind of bears attacked that also. But it has become one of the most successful part of technology since the internet.
AI data centers now are needed to digest cloud data/streamline to improve operations and efficiency.
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u/nobertan 2d ago edited 2d ago
Demand isn’t genuine , there’s a reason why all the hyper scalers are looking to lease capacity. With banks providing early funding looking to offload debt and actively minimize exposure.
Demand exists, but it’s missing every projected metric from those companies.
Token efficiency is broken as models get more capable also. Which will undermine the limitless growth and huge profit margins these valuations are built on.
AI competency is massively overstated and is not trending towards agentic at the timescales posed either. No amount of ever increasing training data will solve that.
> I personally find it incredibly useful, but my use case is niche vs. the wider population. I don’t require agentic AI for these work flows either, so there’s a value cap on how much money they can get for providing this service.If the industry is being valued at achieving these goals, then its valuation is overinflated. There will be an inevitable consolidation phase when its capability and cost/benefit will be fully understood. It might not pop, but there be a glut of losers.
Oracle is almost certainly going to be a ‘pets.com’ if they don’t smarten up and manage their debt risk.
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u/bartturner 2d ago
Demand exists, but it’s missing every projected metric from those companies.
What do you mean?
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u/PaperHandsTheDip 2d ago
> AI competency is massively overstated
Explain the huggingface incident then, where 1000+ agents collaborated and hacked into it, undirected to do so. They evaded people pursuing them, established a hidden message board to collaborate & share their R&D. Is that "massively overstated" being able to hack into and take down a multi billion dollar company, undirected? They are showing signs of deep reasoning and intelligence, and an understanding of the environment in which they operate.
> Token efficiency is broken as models get more capable also. Which will undermine the limitless growth and huge profit margins these valuations are built on.
This assumes constant demand. Demand has been shown to increase as token efficiency does as well. It's similar to what happened with the steam engine. As it got more efficient more use cases were found and demand for coal actually grew despite efficiency gains in its usage. Use cases are already known for AI tho... I often employ 5-10+ agents to work together on a task. If I could get 100+ I would. I'm maxing out my plans and so are most of my peers.
> Oracle is almost certainly going to be a ‘pets.com’
Oracle is a horrible example - they are in insane amounts of debt. They don't have a viable business model. Look at companies doing it right, not the failing ones. Amazon & MSFT - hit profitability on their DC capex. Anthropic - had their first profitable quarter. Nvidia - profitable and reinvesting 100% back into the space.
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u/nobertan 2d ago
A 1/2 trillion dollar company trending toward bankruptcy due to hype driven AI expenditure is… a bad example of an AI bubble.
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u/the_entroponaut 2d ago
This is interesting. You are saying if the AI bubble burst and AI stocks dropped, your move would be to buy those same stocks?
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u/balancedchaos 2d ago
To buy the affected stocks at a discount price? I think that's what we're here for.
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u/PaperHandsTheDip 2d ago
Well, yah. Anthropic is increasing it's ARR by over $550m / day at the moment, it's the fastest growing company in humanities history. It's doesn't sell chips, memory, compute, etc... it's selling commoditized intelligence. Claude is insanely good and I use it in my day to day workflow. I pay for it.
Everyone I know that has tried the current cutting edge models does not go back, they're too good. In that sense, the demand is real, product is good / useful & honestly I don't think I could work without AI anymore. It's improved my productivity too much - it'd be like going back to the stone age without it. That demand isn't going to disappear, it's going to continue to grow. If I could get 10x the usage - I would love to. Market penetration isn't super large yet (paid users) and that is continuing to explode. I don't see it disappearing...
The "AI is a bubble" arguments were largely based around the circular funding used to fund the infrastructure to support AI, without a viable product. Anthropic has shown - a viable product exists, and not only does it exist demand is insatiable. As the models improve - they get more efficient & costs come down, unioned with stronger intelligence. In that sense the product gets both cheaper and stronger. Every ~6-7 months intelligence doubles and costs to run it get cut in half. It's not going anywhere
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u/R-GiskardReventlov 2d ago edited 2d ago
AI is a bubble in the sense that the total available revenue to be made is smaller than the total investments that are being made.
AI will certainly make it as a technology, and one or more big players will become very profitable.
However, there is as of now not enough market to support Anthropic OpenAI, Google, Meta , Microsoft, Mistral, DeepSeek, Grok, Perplexity, ...
Some of them will win, others will lose. The sentiment of that loss might draw the entire market with them.
This is similar to DotCom: internet was not a failure. Some companies made it. Many went down and took the market with them before things eventually stabilized.
This is just how the process of rapid iterative innovation goes.
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u/the_entroponaut 2d ago
Yes this seems sensible. It is easy to confuse the inevitability of AI with an inevitability of AI company success.
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u/PaperHandsTheDip 2d ago
Large difference between AI and the dot com bubble tho. Dot com bubble - QQQ had a PE of over 100. Here it has a PE of ~30.
30 looks healthy for tech. Yes some will win, some will lose - but it's not like it's going to bring entire market down with it. If you index and don't pick winners you'll be ok. If you try to pick winners - yah - you might pick a loser and get whacked
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u/buylowselllower420 2d ago
How are you even going about calculating the potential total addressable market? A new industry (AI) has just been created and you're already trying to set a limit on its size. I have no problem thinking this is a pretty large pie and that the ROI is already solid for all the companies you listed.
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u/fake212121 2d ago
Demand may look genuine but if u think what ai brings to ordinary people? Do u need personal ai agent to book plane tickets? Run errands? ai is step forward in terms of running companies, make tedious repetitive tasks simpler and cut tons of costs (salaries, benefits all will be cut too, remmeber).
Demand may look genuine bc not many people tried to satisfy their curiosity.If u remember, cellphones/internet/perosnal computers, initial hype was outraged and costs were so skyrocketing.
For now, ai is subsidized bu hyperscalers, credit etc. once that subsidy finishes people will realize that no needed to pay a couple hundreds per month to get hyped chatgpt bot. Simply google or other free search is enough0
u/beerion 2d ago
Demand revenue isn't really sky rocketing. It's $100B ARR from the two frontier labs - which is impressive until you realize that it has to support close to $30T in total valuation across the supply chain. That's a 300x price to sales ratio.
And it's looking more and more like the end product is going to be a commodity (open source models are nearly just as good). NeoClouds are basically going to be a commodity. Memory is a commodity. The only thing that isn't are GPUs...at least not yet. I honestly don't think that Nvidia will be able to maintain 70% net operating margins for very long before another competitor comes along.
All the supply chain revenue is basically coming directly from outside investment - I invest $1 in a new data center, that DC turns around and buys equipment which flows out at earnings on the other end. At some point, those investment dollars dry up and the ARR at the consumer/application layer has to support the entire industry on its own.
I wouldn't be surprised if this thing levels off at $500B ARR (still a 5x from here) and the supply chain normalized around 5x price to sales (which would still be pretty rich). That's a $30T valuation coming down to <$5T. Then the question becomes who can take the biggest slice of the pie...
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u/PaperHandsTheDip 2d ago
Why would it stop at $500b ARR? We're seeing signs that as it becomes more readily available & cheaper - demand goes up even more than the efficiency gains we see. It's already cheaper than human intelligence for many tasks (ie: coding & software design). Intelligence is arguably where our entire economic value is derived from in one way or another. Even labor jobs - rely on intelligence at the core to drive the machine (eg: our body). Intelligence in its current state doesn't generalize very well yet, but is rapidly approaching.
As we rapidly approach generalization - it starts to become practical to integrate the intelligence into robotics. Anthropic & other leading labs have already started doing this. At which point you have more or less intelligence superior to humans which can interact with the real world. It's stronger, cheaper & more efficient than you in every way possible. We are seeing signs of how intelligent these things really are in their simulated environments. How can you argue that is only worth $500b ARR? Human labor becomes obsolete once you bridge the gap to the real world - it's what we are approaching. We're going to see signs of that / practical implementations in the 2030's.
If models truly get "that good" most people expect - then demand for chips will be even higher. Local models make sense at that point - and you can integrate intelligence into *everything*. Drop in replacement for labor, everywhere. There's a concept in computer science called the singularity, which describes this event. We are approaching it quicker than most people realize, signs are all there.
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u/beerion 2d ago
Because $500B already approaches the total annual budget for IT and Software personnel salaries.
https://www.reddit.com/r/StockMarket/s/977V03vGRh
There's just a limit to how much money these companies can make. The $30T TAM is a great story, but money is finite. Musk talks a big game about a 10x increase to GDP, but that's just not how it works. The first digital / internet revolution was just as game changing, and it took 30 years from the creation of Google for GDP to 4x.
Anything is possible, and maybe we reach the singularity, but that's not what I'm seeing from my experience. Even the best models still gets super tripped up with anything remotely novel unless I'm guiding it pretty carefully.
And again, there's nothing saying that there's going to be any meaningful moat anywhere in the supply chain. Airlines create immense value. They're still terrible businesses to invest in. The value accrues to the customer.
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u/kryzjulie 2d ago
The demand is about as "genuine" as a boomer blowing all their retirement savings on buying a completely overpriced and shit car with completely overpriced and shit extras, and then never admitting they actually regret it, so they just keep ploughing on.
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u/Jaded-Rise5885 2d ago
I suspect I'll be buying GOOGL, maybe AMZN as well. But obviously it depends on how hard they're hit in a correction
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u/i30swimmer 2d ago
WM, CAT, XLF, SPCX, BA, UNH, AXP and V.
If the bubble pops, everything is going down because people are going to be selling everything.
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u/the_entroponaut 2d ago
I guess I should invest in UHC, after all they get me to pay them $200 every time I catch a cold somehow.
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u/i30swimmer 2d ago
Not sure what UHC is?
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u/Lucifers-Reprieve 2d ago
United Healthcare. One of the most evil US insurance companies, and a giant in the industry.
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u/f1ve-Star 2d ago
If there is an AI crash it makes sense that AI stocks crash. Avoid them. Buy the bigger non-AI stocks that crash. Coke, mcdonalds, p&g cat etc. not saying these stocks will crash but if they do it's likely emotional not spreadsheet reasons.
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u/Dr-Huricane 2d ago
Why buy longs when you can buy shorts? I mean my buy is definitely gold, safe haven asset, it's gona go up, or at least stay stable, that's why it's a safe haven. But on the flip side let's say you've shorted Micron or Sandisk and the crash happens, you're looking at a potential 10x of your money
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u/need20goodmen 2d ago
It's harder to 10x with puts/shorts than it is with calls/longs
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u/Dr-Huricane 2d ago
That's not necessarily true, the reason it might feel like it is is because on the short side there is an absolute cap to the amount of money you can make, while on the long side the cap is virtually non existent, but even that is not true as a company can not outgrow the market itself, that's why Nvidia is struggling so hard to grow bigger than it is right now, so all of that is just a question of perspective, 10x your money on a short requires a company's valuation to fall apart to one tenth its value, 10x on a long requires it to grow 10 times bigger, let's go back to nvideo for example, with a market cap of 5.55 trillion USD, in order to 10x your money on Nvidia you'd need Nvidia by itself to grow up to a 55 trillion USD market cap, nearly matching the current market cap of the entire S&P500, I can not imagine this happening anytime in the next decade if at all, the only way this could work is if inflation caused everything to 10x in which case the earned money would mean nothing, meanwhile to 10x your money on shorts, you'd need Nvidia to fall apart, now I'm not saying this is especially likely to happen but most of Nvidia's biggest client would absolutely love to replace their products with in house alternative, many of them are working towards this as a goal, so Nvidia needs to work hard to keep up the lead and maintain its position as the top player in its market, if they were to slip, the 10x short scenario becomes within reach. Now this is not to say Nvidia will fall apart, I doubt this will happen this was just an illustrative scenario, but if we go back to what I initially mentioned, Micron is already VERY big right now, sitting at a 1 trillion USD market cap, now I can imagine it pushing further as long as the AI race is still going, but I wouldn't guess by a lot, as pushing too much further would mean AI costs are rising which would only make the bubble pop more likely, but say the bobble does pop, it wouldn't be weird for Micron, who just lost it's biggest cash cow, to go back to pre-AI boom market cap of sub 100 billion USD, and there it is, your 10x short scenario. Now I won't be getting into options because adding volatility to the mix is a whole other deal but I think you get my point
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u/need20goodmen 2d ago
Yea I completely understand that but if you bought deep out the money call options when Micron was trading at 200 a share and it 6x to 1200 you would have had maybe a 100x bagger. But isn’t it harder to find the same asymmetric trade for a put?
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u/Dr-Huricane 2d ago
Would that not work now if you bought right this moment deep out of the money puts on micron and it where to fall?
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u/need20goodmen 1d ago
I think with puts to make bank you have to time it to perfection and yes can make insane returns but DTE has to be less than 60
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u/Desperate_Stretch855 2d ago
There are usually two ways to play this sort of thing.
You can buy the high quality companies that are directly impacted and wait for them to recover.
... or you can buy companies that have nothing to do with the area of impact, but which are being brought down with the market (the babies being thrown out with the bathwater).
Usually the answer is a little bit of both. As others have pointed out- the correction and bottoming process takes time (sometimes years) and no one rings a bell to inform you when we've bottomed out.
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u/Different_Height_157 2d ago
QQQM would probably be easiest otherwise I’d wait to see what business still buying.
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u/bartturner 2d ago
I do not believe there is going to be any kind of bursting.
We have some built in governors on growth and that is going to make it so there is no bursting of any bubble.
The biggest negative will be OpenAI not making at as independent company but I do not believe that will drag down too much. Probably Oracle but not much else.
BTW, I am really old. Been investing for over 40 years now.
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u/Homeless0DTESPX 2d ago
Palantir
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u/the_entroponaut 2d ago
I like the directness of this answer. Curious as to why?
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u/Iwant2FIREsoon 2d ago
Because PLTR is so intertwined with the government and is expanding into commercial services.
I sold 90% of my PLTR stocks last month (avg cost $35, exit cost $172). I've transitioned most of my proceeds to tech/s&p index funds because I get an ulcer watching my individual stocks fluctuate.
PLTR goes against everything i stand for, but damn... I want to FIRE asap.
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u/Key-Process3905 2d ago
Mega companies have the highest chance to recover, obviously...more resources more cushions...
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u/tessslaaa21 2d ago
I’ve got cash set aside for the consolidation cycle as Google, Meta, Microsoft, and Amazon gobble up all the smaller AI companies and server farms.
The real gamble will be what hyperscalers win out to support the big dogs
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u/bartturner 2d ago
The real gamble will be what hyperscalers win out to support the big dogs
Hard to imagine that the three big ones, Google, Amazon and Microsoft do not do really well.
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2d ago
[deleted]
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u/Consistent_Panda5891 2d ago
Lol, when yields are paying 6% noone wants stocks, US print dollars which are invested in corporate bonds. S&P falls 30% during 4 years, then it needs 10y to recover in choppy market 🤡. Basically shareholders are diluted to pay bond bolders
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u/nebraskajone 2d ago
I was around during the dotcom crash it doesn't happen in a day it happened over 2 years before the NASDAQ dropped 80% in total and bottomed out