Tuesday, January 28, 2025

Value not found?


We've been riding the wave of a US stock market boom in recent years, particularly tech-stocks, and the likes of Amazon, Google, Apple, Tesla, Facebook, Nvidia and Microsoft (the "Magnificent Seven") are all at all time highs currently. Of course, whenever things go to their "all time high" we can expect a "correction" of some kind at some point, and there's no doubt that we are in a classic hype-cycle when it comes to AI and the valuation frenzy around companies that are involved in it.

I've been through several of these hype cycles now, they all look pretty similar, innovation occurs, inflated expectations are generated, the innovation flattens and we decend into a "trough of disillusionment" as it's known. I believe current AI tools will turn out just like this, sure, it's clever and useful but converting that innovation into hard revenue will, I think, prove a little harder than people think and will take time.

In recent weeks a new entrant to the generative AI scene has emerged, DeepSeek (which has an open source LLM), a Chinese firm has launched a chat platform that seems (superficially) to be as good as ChatGPT, but, the founders claim that it has been done at far less cost and with far fewer resources than it's US competitors (interesting only if true). News of this has sent the stock markets around these tech firms into freefall, Nvidia (which makes the chips used to build AI centric data-centres) lost 17% in one day and considering the market-cap ($3+ trillion) of that company, a record fall on the NASDAQ exchange.

So, will we see a "correction" now, will the magnificent seven turn into the sweaty six or even the flacid five? I somehow think that the bull market around tech is coming to an end, or at least flattening out for a while and the current volatility may provide some opportunistic upside for those with cash to spend. For those of us in pension land I suspect the prudent thing to do will be to switch sectors or to buy bonds for a while until things settle down a bit, then again, for those clever enough to spot the "bottom" a killing may well be made as these big tech firms aren't going anywhere anytime soon so a rebound (albeit perhaps over a couple of years) is pretty likely.

(PS. the stock photo above shows a trader with the number "404" which is ironic as that's the HTML error code for "Page not found", a case of "value not found" today perhaps?

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