Bank of England warns AI stock bubble rivals 2000 dotcom peak

Central bank says market concentration hasn't been this extreme in 50 years.

See full article...

 

[Haravikk]

Thank fuck we don't have a prime minister who has staked his entire government on growing the UK economy by investing in AI and it magically working somehow…

…oh, wait…

 

[clackerd]

I'd love to see the AI bubble burst and burst hard. And for it to just wreck XAi to the point Elon is forced to take cars seriously again

 

[numerobis]

Are there any index funds that exclude any company heavily involved with AI? Because I really want to shift my money into that.

Given that even sparkling water companies are heavily involved with AI... not really.

 

[jimmy.j.r]

Just a reminder that investing in an S&P 500 index fund is not particularly diversified. It's better than individual stock picking, but it's still just the biggest companies in one country. Ideally, you should diversify geographically as well as by sector. If you want to do it the easy way, look for globally diversified index funds that track several national indecies in proportion to their share of the global market.

boglehead three-fund strategy is as old as time.

although tbh I feel the average person who knows about cheap index funds knows how to go about them. contrary to what youtube is telling us, not a ton of people just slam their entire funds in to VOO or QQQ or whatever.

 

[adingo]

Does anyone know what proportion of the chip market is being bought by AI companies? I have a couple of chip stocks that have done really well and don’t want to see those gains disappear. (Yes, of course I could sell.) I’m wondering just how robust the demand for chips is outside of AI uses.

 

[numerobis]

Didn't the bank of England issue a similar warning about shitcoins a few years back?

ETA: yes, they did:

Governor of the Bank of England Andrew Bailey recently issued a stark warning to anyone attracted to this seductive asset class.​

“They have no intrinsic value. That doesn’t mean to say people don’t put value on them, because they can have extrinsic value. But they have no intrinsic value,” he said during a press conference in London earlier this month. “I’m going to say this very bluntly again. Buy them only if you’re prepared to lose all your money.”

AI investment is in the hundreds of billions. Cryptocurrency investments are a few billion of actual dollars actually invested; it only looks large if you multiply the value of investment by the number of outstanding coins, but nowhere near that much money is actually moving around.

 

[numerobis]

I kinda hope that when the AI bubble pops, it takes the housing market with it. (There will be damage, but unfortunately not enough to make owning a home feasible for the younger generations.)

It won't.

The crash will be managed by printing more money and spreading it into the economy via the wealthy. So they'll own even more of global wealth, meaning less of it is available for the little people.

 

[terrydactyl]

Well, not just that. The '29 crash also - finally - triggered the institution of many safeguards against similar market crashes at the institutional/government level. A big factor in '29, for example, was highly leveraged stock purchases, often with as little as 10% actually invested - making losses 10 times worse when they occurred. Nowadays leverage is limited to 50% - still riskier than a simple direct purchase, but a lot better than before. Things like unemployment insurance, Social Security, and other progressive reforms also help to blunt the impact of economic market downturns. 1929 led to a LOT of changes intended to prevent or at least lessen the impact of market volatility, and those changes have overall worked pretty well. As you note, prior to 1929 there were stock market crashes on a regular basis of similar magnitude; 1929 was only different because a burgeoning middle class got sucked down the toilet along with more well-to-do investors.

It should be noted that many of the reforms enacted back then have been eroded, Glass–Steagall, as an example. Some want them repealed because they forget why they were enacted. Others want them repealed because they know why they were enacted.

 

[Corporate_Goon]

Still waiting on that Crypto bubble to burst. At least AI actually does something.

 

[jtwrenn]

It is definitely a bubble and it will collapse at some point, but I really wonder which companies will take the brunt and which will do ok. I think the front sale AI stocks...ie openai, palantir, and anthropic are going to be where the biggest hits are when the bubble pops. Nvidia and AMD are both on that list as well, but I think to a lesser degree as I feel some will still do quite well. Nvidia I feel will be the one to most likely pivot into more autonomous robot type solution providing, and as such while their big top line will go down...ie datacenters, I don't think it will go down nearly as much as the direct AI providers.

Nvidia is actually the only one I see trying to pivot to other ideas other than datacenters even as it is their biggest money maker. Their desktop ai and robot ai systems like Groot make me think they won't pop nearly as much.

it is all a crap shoot though. With Dot.com the smaller guys all imploded and the big guys gobbled them up. AI is all invested by big guys already so I wonder if it will make the bubble more resilient, or just explode harder. Very similar but different makes my head hurt.

 

[jtwrenn]

Still waiting on that Crypto bubble to burst. At least AI actually does something.

It's too bad the number one thing it does is get rid of jobs.

 

[muddledzen]

(the Internet was useful, after all, despite the bubble)

Jury’s still out on this one.

 

[terrydactyl]

Does anyone know what proportion of the chip market is being bought by AI companies? I have a couple of chip stocks that have done really well and don’t want to see those gains disappear. (Yes, of course I could sell.) I’m wondering just how robust the demand for chips is outside of AI uses.

What matters is when the AI bubble bursts, it will drag down a lot of tech stock, something of a chain reaction. The hard part is to get out when you think it's going down. A psychological problem is selling at an $8 profit when a week ago you had $10.

 

[numerobis]

But this did happen. After the Great Depression, Americans didn’t allow a Republican anywhere near the White House for almost a generation. That was strictly for economic reasons. Added on top of that, are the current regime’s abuses and selling off the country to the rich. I’m hoping this time around, they go extinct.

And after the Great Recession, Americans elected Trump.

 

[muddledzen]

It’s awesome that AI will either steal my job because some exec at my company has been sold on it being ‘good enough’, meaning that it saves enough money that they can afford to deal with how idiotic it is (the talk is already in the air on that one at my company), or it’ll put me out of the job with a bubble burst.

Remember when everyone was like “go into technology, it’s a stable field!” … welp

 

[shunted]

Just a reminder that investing in an S&P 500 index fund is not particularly diversified. It's better than individual stock picking, but it's still just the biggest companies in one country. Ideally, you should diversify geographically as well as by sector. If you want to do it the easy way, look for globally diversified index funds that track several national indecies in proportion to their share of the global market.

Most "US" companies are pretty well exposed outside the US. Foreign markets have been lagging behind the US for a long time. Everyone can decide for themselves, but look at the 5 year returns of something like VTIAX vs VTSAX before you leap. You'd have left a lot of money on the table if you went i18n for the past several years.

 

[SixDegrees]

It should be noted that many of the reforms enacted back then have been eroded, Glass–Steagall, as an example. Some want them repealed because they forget why they were enacted. Others want them repealed because they know why they were enacted.

Agree.

 

[Jacibulka]

I feel it is incorrect to simply consider this as in the mold of the 2000 bubble. They are building massive AI data centers all over the world right now. It is consuming enormous capital to build these and power these. AI leverages the cloud, but the truth is that the cloud is actually huge servers that spool up from 10% load to 130% in a blink of an eye and back again from the loading of all the users in the world.
And all of that has a sizable foot print requiring investment. How much revenue does it actually bring in?
That is where i worry. I am not convinced all the organizations building these have fully realized revenue streams to even cover a portion of their operating costs.


Will the correction be on everyone or just a handful of companies lacking vision for revenue and market success? Because at the end of the day, adding an AI to some software with the intellect of an administrative clerk with savant syndrome can have enormous benefits for a person. However the company running it actually needs to make money from their energy bill.

Weren’t the biggest winners from the California gold rush, the people who sold them their supplies?

 

[SnowGhost]

"This time it's different."

It IS different this time. It's so very very different.

It's Bigger!

 

[Zarsus]

No doubt there would be a hit on all of them in the event of a Pop, but suggesting this could be "dotcom" level carnage seems misplaced. It will be the likes of OpenAI that really feel it, and they're not listed.

The problem is the unbelievable number of companies using "AI" to prop up their stock prices. Mine just hired a "CAITO" (Chief AI and Technology Officer), I wish I was shitting you, but I am not.
And when the time comes, these companies will have their valuations reevaluated as well.

 

[GFKBill]

Weren’t the biggest winners from the California gold rush, the people who sold them their supplies?

Presumably until the gold ran out, and they were left holding a pile of shovels nobody wanted.

 

[GFKBill]

I'm sure my Long Island Tea Blockchain AI shares will be fine. That seems pretty diverse to me.

 

[skitty]

When you look at the long term charts, the only one that really stands out is Nvidia as having seriously spiked up (Meta to a lesser extent). No doubt there would be a hit on all of them in the event of a Pop, but suggesting this could be "dotcom" level carnage seems misplaced. It will be the likes of OpenAI that really feel it, and they're not listed.

We should all hope any correction is drawn out and not severe. Much as we want to see the silly money and silly promises stop, it's the people at the bottom of the food chain that hurt most when there's a recession.

I'll stick to my regular fund contributions, and hope it's all shaken out by the time I retire in 7 or 8 years.

OpenAI has promised a lot of money to companies that are listed, so it's hard to imagine that any sort of pop won't significantly spill over to publicly traded companies.

 

[terrydactyl]

Presumably until the gold ran out, and they were left holding a pile of shovels nobody wanted.

The smart ones, like Mark Hopkins, made their money selling shovels, then invested in in things like railroads.

 

[Nilt]

Well frickin' DUH! I'd like to see a comparison to the Tulip Bubble, too. Wonder how that compares.

 

[skdjfnskdnf]

'Rivals' the dot com boom? It's much, much larger than the dot com boom - and at least you could argue that all the money spent to lay fiber back then is still paying dividends now. GenAI contributes nothing of value to society and will continue to provide nothing long after the whole thing collapses.

A whole lot of compute/most compute is not a bad thing to own, even if it becomes a commodity after the crash. There will be uses for it.

 

[Nilt]

Presumably until the gold ran out, and they were left holding a pile of shovels nobody wanted.

Shovels will always get sold eventually. They're a universally useful tool for digging. These AI companies hallucination bullshit engine companies, however, aren't useful at all, really. They just give the illusion of it until you look deep enough at the way their products "work".

 

[maxoakland]

Can't happen soon enough.

Yes but it’s gonna suck. feels like AI hype is one of the few things propping up the economy

Which is even more annoying because they could’ve gotten hype about a cool, good technology that makes lives better but instead they chose this dumpster fire

 

[Alfonse]

Less than two ago, Deutsche Bank issued their warning on AI, flatly noting if it wasn’t for them propping up the market, we’d already be in recession. Now the Bank of England essentially issues the same core warning.

The US Federal Reserve Bank, of course, says nothing. Because they kowtow to Dear Leader.

 

[Alfonse]

Weren’t the biggest winners from the California gold rush, the people who sold them their supplies?

To a degree, yes. But that all depends on how all-in you are in selling them those supplies. If you go overboard in making shovels and make that the entirety of your business model, and you invest all of your profits into making 5x as many shovels this year as last year, you are just as fucked as the miners when the market goes belly up.

Making money off of a gold rush requires knowing when to pivot away from it. That you invest in it in a way that allows you to survive when demand drops. That you treat the whole thing as a windfall and not try to keep doubling down on it.

NVIDIA actually did this with the crypto-mining boom; they stayed at arms length and did not try to overproduce to meet demand.

 

[JBanister]

Problem is, when the AI bubble pops, it's going to haul most of the rest of the stock market down with it.

Move to bonds. Or cash.

My cash is waiting for when the crash irrationally lowers stocks with intrinsic value.

 

[abcndnst7870]

Looking forward to it - hope the new depression lines up with the last one in 1929 for ocd reasons.

 

[GFKBill]

Shovels will always get sold eventually. They're a universally useful tool for digging. These AI companies hallucination bullshit engine companies, however, aren't useful at all, really. They just give the illusion of it until you look deep enough at the way their products "work".

LLM's absolutely have value and are useful. Is it over-hyped? Hell yes. Is it utterly worthless? Not at all.

 

[Easyenough]

Are there any index funds that exclude any company heavily involved with AI? Because I really want to shift my money into that.

It's called, "Europe."

 

[Random John Smith Guy]

Correct away.

The company I work at just had significant layoffs, entire teams are gone. But you know what we're still working on? Putting AI in our software that nobody asked for.

There actually is an argument that AI is killing jobs... by hoovering up all the available capital in the market so nobody invests in anything else. Why hire workers when you could be rewarded for spending the money on "AI" instead.


Now, in the long run, some of this investment will eventually become productive, but like 95% of AI investment right now is basically pissing money away.

 

[Random John Smith Guy]

Well, not just that. The '29 crash also - finally - triggered the institution of many safeguards against similar market crashes at the institutional/government level. A big factor in '29, for example, was highly leveraged stock purchases, often with as little as 10% actually invested - making losses 10 times worse when they occurred. Nowadays leverage is limited to 50% - still riskier than a simple direct purchase, but a lot better than before. Things like unemployment insurance, Social Security, and other progressive reforms also help to blunt the impact of economic market downturns. 1929 led to a LOT of changes intended to prevent or at least lessen the impact of market volatility, and those changes have overall worked pretty well. As you note, prior to 1929 there were stock market crashes on a regular basis of similar magnitude; 1929 was only different because a burgeoning middle class got sucked down the toilet along with more well-to-do investors.

The FDIC is definitely a win, but on the whole the situation was only really smoothed out with the rise of good central banking in the post-Nixon Shock era. While financial crises are still very possible, it is, today, much more difficult for them to have lasting impacts on the "real economy". In 1929, the maintenance of the gold standard and imposition of high tariffs essentially trapped the economy in post-panic mode; it wasn't until the dollar was allowed to inflate that things finally were fixed.

 

[graylshaped]

The FDIC is definitely a win, but on the whole the situation was only really smoothed out with the rise of good central banking in the post-Nixon Shock era. While financial crises are still very possible, it is, today, much more difficult for them to have lasting impacts on the "real economy". In 1929, the maintenance of the gold standard and imposition of high tariffs essentially trapped the economy in post-panic mode; it wasn't until the dollar was allowed to inflate that things finally were fixed.

"Fixed?" snarls Donald Trump. "Hold my beer!"

 

[sonicmerlin]

Global stock markets were effectively nationalized when the Federal Reserve took control in 2009 and the major banks consolidated into just a few mega banks. Equities have been overvalued for a decade now, with the bubble getting ever bigger with each passing year, and most of the gains going to mega caps and especially tech companies like google, msft and even Netflix.

We’re seeing historic levels of wealth inequality because the banks and the Federal Reserve are left with unfettered control over the levers of the market.

Remember when a Bernie Sanders led audit of the Fed in 2009 discovered $14 trillion in publicly undisclosed loans to banks around the globe to avert economic Armageddon? Why don’t we do another independent audit to see how much they’ve done in the intervening 16 years? I suspect the Fed engages in a great deal of undisclosed financial transactions to prop and inflate global equities.