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AI - Does It Have Your Full Attention Yet?
Been doing more thinking about AI. The market is telling me the hyper-chasing and extreme MOMO action might be over or at least subsiding in some type of transition. The market is also telling me that it is not going away by any means.
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Let’s look at the Nasdaq General Market Indicators from Investor’s Business Daily after the close on 12/30:
Thoughts and observations:
A quick glance on the surface shows the Nasdaq “still sits above support” and doesn’t look absolutely horrible or terrible overall . . . . fair enough . . . .
Put/Call Ratio remains subdued demonstrating both investor apathy and giddiness while the Accumulation/Distribution Rating sits at D+ . . . . . both clear to see for all . . . .
Are the Nasdaq and Risk On in the process of rolling over . . . . are we setting lower and lower Highs on weaker Volume . . . . we don’t know for sure but there is an element of this present for sure . . . .
Since Thanksgiving (yes account for all the Holidays, etc.) the down days have had Higher Volume than the up days overall . . . . this is a fact
Appears possible things are more hanging in the balance now than they are full throttle bullish . . . .
Some stocks like PLTR and NVDA have bounced a bit on Low Volume but nonetheless finessed into Buy Zones and touted by IBD along with TSLA. The OBBA goes into effect with the CAPEX benefits in tow, and although perhaps muted a bit the Arms Race aspect of AI is far from over.
In my view two of the biggest threats from an investing standpoint directly related to AI are the following: A) customers both B2B and B2C hitting a wall where they stop/slow the spend seeing lack of reason to increase it, and B) the hard stop from power/energy/electricity even considering getting help from above (Space).
We don’t know exactly when power/energy/electricity constraints will crush the market and it’s not as if it will be a one time event like someone ringing a very loud bell so the whole world adjusts all at once. However - it might not be in 2026 or even 2027. In my view we must remain very open minded to the possibility of the markets making another big run up until discounting a looming energy hard stop becomes all too obvious. Not saying it will happen just that it could.
Let’s go back to the customers though. Power/Energy/Electricity looms as a major hard stop but what about accounting for who and what will pay for all of these purported newfound trillions in revenue that will appear between now and 2030. In the long run I’m aboard the ship for the ‘Melt Up’ and AI in terms of “sky’s the limit” and my mind is very open to that. I’m not entirely convinced it will be a straight line up or an easy path though - far from it.
In my brain - it was helpful to segment B2B and B2C. I have no idea what the end result will be in 5, 10, 20 years for AI and robotics. For the purposes of this report my focus is more on the markets over the next say 3-24 months. For B2B - my senses keep pushing me towards an outcome that has roots going back to the days of Excel and PowerPoint.
In the business world it appears and seems to me that AI will create an environment where certain tasks/features/tools become a basic expectation of employees. In other words - after the Personal Computer explosion it became obvious in the workforce that having basic Excel and PowerPoint skills was an expectation built into the job. Seems very plausible to me this could happen with AI. If firms see a positive ROI with certain tools that don’t crush employee morale or harm the firm strategically - seems to me these tools will be paid for and implemented broadly. How much revenue is this? Well - the total software market right now for the economy is $1 Trillion/year roughly.
B2C - I see this one a lot differently. The more I think about it the more I see OpenAI and the slew of companies with private valuations in the billions chasing OpenAI . . . . . . simply ending up competing hard in the same attention economy expanded by social media. There are only so many humans on the planet. Humans can only consume so much content. Yes - I realize robots are coming and they will consume as well eventually. OpenAI already told us they want a bailout and that they are getting in to the affiliate shopping game and other directly obvious B2C plays. In other words - Altman realizes he has to get actual transactions and revenue out of individual consumers somehow and the SaaS subscription game isn’t enough (and arguably already tailing off).
This is where I see some potential problems for the markets. Not death blows - but some challenges. End of the day “all this AI stuff” at the B2C level might be competing most with . . . . . YouTube. How are all of these companies going to extract billions and trillions in revenue from consumers? Seems quite dubious to me but perhaps I am wrong. To be blunt - a lot of these things look to me like a search engine or variation thereof - how much are people going to pay for this? What happens when 10, 20, 30 of them are all chasing the same B2C dollars? In terms of the markets . . . .
Thoughts and observations:
Everything here just adds more uncertainty and questions . . . . doesn’t make me expect or project a crash but rather more time spent consolidating and adjusting . . . . .
Reality and physics plus a lot more tell us there is a wall looming related to power/energy/electricity . . . . but if not until 2027 or later maybe the market ignores it . . . . . until it doesn’t . . . . this is very plausible in my view . . . .
In my view the market is already starting to ignore certain things and focus more on cash flow and . . . . . you know . . . . actual profits and stuff . . . . mind is very open to this trend only gaining momentum . . . . . .
Bigger picture the AI Arms Race is NOT over in my view . . . . . it will only intensify . . . . . senses are that the market will demonstrate a lot more discernment which means more work and discipline required of us but plausibly better rewards . . . .
