The Generative AI Fizzle™

Disclaimer: Anything can happen at anytime in the market; I don’t give stock picks, and as the saying goes, the market can remain irrational longer than you can remain solvent.

Still:

1. My joke/warning about SpaceX and tulip mania (look it up if you don’t know what it is) 9 days ago:

That actually looks kinda on track so far:

Thoughts and prayers for those that bought 10 days ago at 225.

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1. Yesterday I coined a new term, the Generative AI Fizzle™. There is no doubt in my mind that a lot of things in AI are overvalued, but that doesn’t mean they will deflate at all once. They might, but maybe what we will see is more like a slow decline, as investors lose enthusiasm for the ratio between hype (insane) and profits (not that impressive thus far). Along these lines, I made a tweet last night, based on yesterday’s market:

Of course one day’s results don’t tell us much, but for what it’s worth most of those stocks are down again today (except Micron which just had a big bounce after a great earnings report).

and most of them are down significantly for the month:

Maybe this is how GenAI declines, not with a bang, but a whimper?

To be sure I don’t expect LLMs to disappear anytime soon but the valuations and market caps we are currently seeing may eventually be seen as ludicrous.

Tulips didn’t disappear; astronomical tulip prices did.

1. For a really long time I have been warning that the almost-universal obsession across the AI industry with LLMs meant basically (i) no technical moat for anyone, and (ii) that would make profits hard to come from. I warned (iii) that LLMs would become commodities, and (iv) that we would expect price wars. I have been banging that drum here for three years, as in this January 2024 warning about OpenAI:

   

   In my view, the world has indeed gone in this direction. LLMs have become commodities, prices wars have been significant, profits for the LLM providers have been elusive. Yesterday a new Chinese, open-source model came out that might make all of this drastically worse for the US LLM companies:

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And yeah, profitability is still a struggle:

(By the way, Elson interviewed me yesterday for a lively episode of the Prof G Pod that will appear Friday.)

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If GenAI-mania does fall apart, slowly or suddenly, it’s a big deal, especially given the growing amount of debt.

How big? Here a quote I just saw via Bloomberg:

Even if the bubble doesn’t pop, maybe it has already started to fizzle?

Stay tuned.

Also, watch for a new oped from yours truly in the Financial Times, coming very soon.

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