Speculation, speculation everywhere

If there was one constant theme in 2025, it was the tug of war that continued between AI skeptics and the believers/opportunists. The skeptics continued to point out how AGI was nowhere near and the believers said “just wait!”

This boiled down to the question of whether this was a bubble a la the late 90’s into 2000 (seemingly everyone’s favorite analogy) or just a build up into what will eventually become a bubble a la the late 90’s into 2000. The believers consistently state this is no bubble because there are real earnings, but even if it eventually builds into one, we are in the early stages and much money will be made in the run-up.

I remain firmly in the this is most definitely a bubble camp. But, I have a more nuanced view. I don’t actually believe in the AI bubble narrative as, yes, real money is being spent on hardware and data center builds but also because the bubble (if it exists) doesn’t involve a ton of leverage and is mostly contained within the hyperscalers.

The bubble as I see it, is everywhere. To me the main difference between now and 2000 (obviously there are many as no two periods of history are exactly the same) is that speculation that would historically taken place in the stock market has bled over into so many other areas- futures, options, leveraged ETF’s, an array of sports betting apps, prediction markets, and cryptocurrencies. I’m confident that at some point in the future we will look back at this period and wonder what the hell everyone was thinking.

Distortions caused by lengthy bull markets

Madness is rare in individuals — but in groups, parties, nations, and ages it is the rule.

— Friedrich Nietzsche

Something strange happens when things go really well for a long time. You get reality distortions where otherwise, seemingly intelligent, sane people, start to believe things that are plainly untrue.

Nowhere is this madness more apparent in the false prophets that have emerged over the past several years.

There’s a new show out on Netflix called Members Only: Palm Beach. In it, a group of very wealthy middle-aged women hang out together around Palm Beach, attend lavish parties, gossip and infight. One of the recurring themes is whether newcomers to the group are prepared to hang out with the likes of “Elon and Trump.” This is a show that, if the technology allowed for it, could have been made in the midst of the 1920’s Florida real estate bubble.

My point here is that a group of socialites, far removed from Wall Street see it as the pinnacle of success to breathe the same air as Elon Musk and have raised him to single name status like Madonna or Cher. Tesla recently showed that they missed delivery estimates and in the previous year had sold 16,000 Cybertrucks, about a tenth of the projected number. SpaceX is doing some amazing things, as is Tesla and Starlink. But most of what surrounds Musk are empty promises that never really materialize. Such a cult he’s ammassed, though, that Tesla is now valued at $1.4 trillion.

This is clearly not a new story. It’s been years in the making. But now it is pretty much taken as a fact of life that Tesla is worth that much, making Musk the richest man on Earth. That creates distortions everywhere. People believe that because he has such enormous stock holdings that he must know what he’s talking about. Politicians have hitched their wagons to him. And now we can see it’s everywhere. Living in Florida, you can see Cybertrucks all over the place and Musk is viewed as a celebrity and genius of God-tier status.

It’s not just Musk. In this era there have been so many false prophets established by these distortions that I can’t list them all. Just to name a few: Alex Karp, Palmer Luckey, Andrew Dudum, Michael Saylor, Brian Armstrong. The list goes on and on and on.

This is not new, by the way. It’s actually one aspect of this period that is most definitely a parallel of the late 90’s stock bubble and long before that, John Kenneth Galbraith wrote about it in a “Short History of Finanical Euhporia.” The accumulation of wealth seems like a miracle and naturally those who have accumulated a tremendous amount are viewed to be infallable. In the late 90’s there were so many CEO’s with paper billions who would go on to lose virtually everything.

I still think you have to keep your eye on the ball. Things go crazy long enough to convince a sane person that fiction is fact because the madness becomes so normalized. But much of what is happening isn’t in equilibrium or based in reality. Most of these companies barely make any money at all. At some point valuations will matter again.

Some predictions for 26

  • OpenAI adoption will increase beyond a critical mass and this will start to impact Google's search business materially
  • TSLA stock will badly underperform the S&P and will experience a severe decline
  • What I've termed the "Robinhood Bubble" will break and multiple stocks will experience significant declines: PLTR, HOOD, SOFI, RDDT and many more