Robert Kiyosaki has issued a stark warning about an impending financial disaster, which he believes will devastate baby boomers. A crypto analyst predicts bitcoin could exceed $330,000, defying historical growth patterns through a combination of pattern disruptions and the theory of diminishing returns. Venture capitalist Tim Draper forecasts that bitcoin will dramatically transform El Salvador […]
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Scott Melker, also known as the “Wolf of All Streets,” believes that we are at the start of a major bull run for both bitcoin and the broader crypto market. “We will likely see a huge bubble and that coins with no fundamental value will also skyrocket before it inevitably pops,” he warned, adding that […]
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Over the past 30 years, Wall Street has enjoyed no shortage of next-big-thing investment trends. Innovations and high-interest trends such as the advent of the internet, genome decoding, business-to-business commerce, China stocks, 3-D printing, cannabis, blockchain technology, and the metaverse, have captivated the attention, and wallets, of professional and retail investors.
At the moment, nothing is garnering more hoopla than the rise of artificial intelligence (AI).
When I say “AI,” I’m referring to the use of software and systems to handle tasks that humans would typically undertake. The secret sauce to AI is machine learning, which allows these software and system to evolve over time and become more efficient at their tasks. Given that AI has application in virtually every sector and industry, it’s not really a surprise that the analysts at PwC anticipate it could add a staggering $15.7 trillion to global gross domestic product by 2030.
Although dozens of AI stocks have benefited from the early stages of the AI revolution, it’s semiconductor company Nvidia (NASDAQ: NVDA) that’s truly become the face of the movement.
The way I regularly describe Nvidia’s role is as the “infrastructure backbone” of the AI revolution. The company’s A100 and H100 graphics processing units (GPUs) are used by businesses in high-compute data centers. Nvidia’s GPUs are the foundation that allows for the split-second decision-making required of AI software and systems. The analysts at Citigroup have suggested that Nvidia could account for a 90% share of GPU’s deployed in AI-accelerated data centers this year.
What’s been particularly beneficial for Nvidia is that demand for its high-powered AI chips has overwhelmed supply. It’s enjoyed exceptional pricing power on its A100 and H100 GPUs, which is largely responsible for its skyrocketing data center sales.
Unfortunately, there are also reasons to believe Nvidia — and potentially even the AI movement as a whole — is in a sizable bubble. For instance, every next-big-thing trend over the past three decades has endured an early stage bubble. Investors have a terrible habit of overestimating the adoption of new technology, and AI is unlikely to be the exception to this unwritten rule.
More specific to Nvidia, it’s set to face a monumental increase in external and internal competition. Advanced Micro Devices and Intel have AI-focused GPUs they’re rolling out this year to directly compete with Nvidia in high-compute data centers. Additionally, some of Nvidia’s largest customers are developing AI chips of their own, which could lessen their future reliance on the current king of AI.
Nvidia also anticipates production for its A100 and H100 chips will increase, which would be expected to lessen AI-GPU scarcity. Since scarcity has been the company’s core catalyst on the pricing front, it’s quite possible Nvidia will cannibalize its own margins as its data center segment scales.
Instead of putting your money to work in an AI stock that may very well be in a bubble at a multiple of 34 times last year’s sales, consider investing in the following two AI stocks that aren’t at risk of a collapse if history rhymes, once more.
The first AI stock that offers a considerably better value proposition than Nvidia and isn’t at risk of a collapse if the AI bubble bursts is social media titan Meta Platforms (NASDAQ: META).
Meta is using Ai in a variety of ways. It’s monitoring comments on its various social sites for noncompliance, and giving businesses access to generative AI solutions that can help tailor their messages to individual users to (ideally) improve sales.
While Meta’s stock has undeniably enjoyed a hearty boost because of the AI revolution, many of the company’s investments are geared at moving the needle years from now. It’s why CEO Mark Zuckerburg has been perfectly content with Reality Labs losing more than $10 billion annually to further Meta’s virtual/augmented reality and metaverse ambitions.
What would ultimately protect Meta from an AI collapse is the company’s top-notch social media real estate, which includes the most-popular social media platform on the planet, Facebook, along with Instagram, WhatsApp, Facebook Messenger, and Threads. Collectively, Meta’s family of apps attracted almost 4 billion monthly active users to its sites during the December-ended quarter. Businesses realize that Meta’s social sites reach the broadest audience, which is what typically affords the company exceptional ad-pricing power.
Another reason investors don’t have to worry about Meta being in a bubble is the company’s cash flow and balance sheet. It closed out 2023 with $65.4 billion in cash, cash equivalents, and marketable securities, and ultimately generated more than $71 billion in net cash from its operating activities for the year. Meta has the luxury of taking chances since its foundational business is a cash-printing machine.
Despite crossing above the $500-per-share mark to end last week, Meta stock remains considerably cheaper than Nvidia. Shares can be picked up right now for 22 times forward-year earnings and roughly 13 times forecast cash flow in 2025. By comparison, Nvidia trades at nearly 28 times Wall Street’s consensus cash flow for the following year.
A second AI stock that’s demonstrably cheaper than Nvidia and not at risk of collapse if the AI bubble were to burst is China-based Baidu (NASDAQ: BIDU).
Similar to Meta, Baidu has quite a few applications for artificial intelligence. The company’s AI Cloud held the fourth-highest share of cloud infrastructure service spending in China, as of March 2023, based on estimates from tech-analysis firm Canalys. Meanwhile, Apollo Go is the most-successful autonomous ride-hailing service in the world, with more than 5 million accumulated rides since inception.
Despite making aggressive investments in AI, Baidu’s bread-and-butter operating segment continues to be its internet search engine. In January, Baidu accounted for approximately 60% of internet search within China, which was 44 percentage points higher than its next-closest competitor. With few exceptions, Baidu’s search engine has sustained a 60% to 85% share of internet search for the world’s No. 2 economy dating back nine years. This makes Baidu the logical go-to for businesses wanting to target users with their message(s).
Baidu should also benefit from the reopening of the Chinese economy following the worst of the COVID-19 pandemic. Three years of stringent and unpredictable lockdowns that attempted to mitigate the spread of COVID-19 have led to sizable supply chain kinks in China’s economy. These are steadily being worked out, which is good news for Baidu’s revenue and profit trajectory.
The company also has a veritable treasure chest of cash to cushion any potential bubble-popping event in AI. Baidu closed out 2023 with more than $28 billion in cash, cash equivalents, restricted cash, and short-term investments, which is more than enough capital to fuel innovation in all facets of its operations.
The final piece of the puzzle is that Baidu is historically cheap. Shares closed out the previous week at just 8 times forward-year consensus earnings and a little north of 7 times estimated cash flow in 2025. It makes for a smarter buy than Nvidia considering the history of bubbles associated with next-big-thing investment trends.
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Forget Nvidia: These 2 Artificial Intelligence (AI) Stocks Are Considerably Cheaper and Not in a Bubble was originally published by The Motley Fool
The historic stock-market rally has shown few signs of stopping since October — with the S&P 500 advancing in 16 of the last 18 weeks for the first time since 1971.
There have been only two other scenarios when U.S. stocks climbed this fast over any four-month period since World War II, and the recent rally has “strong parallels” to both, according to a Deutsche Bank analyst.
The first scenario was when the economy was emerging from recession, such as after the COVID-19 pandemic or the 2007-2008 global financial crisis, while the second was during the dot-com bubble era in the late 1990s, when stocks saw rapid gains that proved unsustainable, said Henry Allen, macro strategist at Deutsche Bank.
“The last time we saw the S&P 500 advance this rapidly over four months was up to July 2020,” when equities staged a “sharp recovery” after slumping on growing instability due to the onset of the COVID pandemic earlier that year, Allen said in a Monday client note.
The mid-2020 rally was supported by massive amounts of monetary and fiscal stimulus, with the S&P 500
SPX
rising 26.6% between April and July, almost taking the index back to its pre-COVID peak, according to FactSet data.
Looking further back, U.S. stocks also rallied after the S&P 500 fell to fresh lows in 2008 following the global financial crisis — with the index gaining more than 25% over the four months that ended in June 2009 once “the most acute phase” of the crisis had passed, according to data compiled by Deutsche Bank.
“Unsurprisingly, recessions normally lead to significant equity selloffs, then when the economy begins to improve again, there’s usually a fast recovery for the stock market,” Allen said.
See: Nasdaq-100 rose 3% for the first time since the dot-com bubble era. Why it brings up old memories of this ‘scary’ period.
Allen said the seemingly relentless equity rally also brings to mind the dot-com bubble from over two decades ago, which saw the S&P 500 rise by 26% over the four months that ended in July 1997.
The rally later was followed by a bursting of the bubble, with stocks falling for three years in a row from 2000 to 2002.
See: S&P 500’s breadth ‘still narrow’ after record peak — with these four stocks driving February gains
The large-cap benchmark S&P 500 has risen 21.5% since it bottomed in October 2023, spurred on by growing hopes for a soft landing for the U.S. economy, expectations that the Federal Reserve will soon start cutting interest rates and investor enthusiasm for artificial intelligence.
“It’s rare to see a rally this fast, and when they happen it’s usually because the economy is emerging from recession and the stock market has just been through a slump,” Allen said on Monday, adding that the only time in the post-World War II period that this wasn’t the case was during the dot-com bubble era.
Their rarity may raise fears that the recent stock-market rally is also a bubble, Allen noted.
Indeed, market participants have been debating whether the rush over the past year into the so-called Magnificent Seven stocks — a group that includes chip maker Nvidia Corp.
NVDA,
and other megacap technology companies — resembles the dot-com bubble era, a period when equities also rode a wave of tech hype only to come crashing down, triggering a mild recession.
While the Deutsche Bank analyst didn’t draw a direct parallel between the recent stock rally and any of the two prior scenarios of rapid gains, Allen admitted this rally has similarities to them. The U.S. economy also has remained surprising resilient during this cycle, even with the Fed’s policy rate steady at a 22-year high since July.
The three major U.S. stock indexes finished lower on Monday afternoon, with the S&P 500 and the Nasdaq Composite
COMP
retreating from their record highs to start the week, down by 0.1% and 0.4%, respectively. The Dow Jones Industrial Average
DJIA
dropped 0.3%, according to FactSet data.
Gold advocate and vocal bitcoin critic Peter Schiff has warned of a bubble in bitcoin exchange-traded funds (ETFs) that will burst when gold rallies. Schiff argues that gold will “inevitably” break out, and the price of bitcoin will crash as investors withdraw from bitcoin ETFs. “Bitcoin has basically become a bet against gold,” he stressed. […]
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US stocks are heavily overvalued, a recession is coming, and AI is overhyped, Jeremy Grantham said.
Stocks would have plunged another 20% or 30% in 2023 if not for the AI craze, the investor said.
Grantham said he’s worried about foreign wars, especially when asset prices are at record highs.
Stocks are absurdly expensive and likely to struggle, artificial intelligence is a bubble destined to burst, and the economy will suffer a minor recession or worse, Jeremy Grantham has warned.
The cofounder and long-term strategist of fund manager GMO recommended avoiding US stocks in a recent ThinkAdvisor interview. “They’re almost ridiculously higher priced than the rest of the world,” he said.
“The stock market will have a tough year,” he continued. American companies’ profit margins are at historic highs relative to foreign rivals, creating a “double jeopardy” situation for stocks where both earnings and multiples could fall, he added.
Grantham, a market historian who rang the alarm on a multi-asset “superbubble” at the start of 2022, said it burst that year when the S&P 500 tumbled 19% and the tech-heavy Nasdaq Composite plunged 33%.
Stocks would have slumped another 20% or 30%, he said, but the sell-off was “rudely interrupted” by the AI frenzy in early 2023 that “changed the flight path of the entire stock market.”
The veteran investor said that “AI isn’t a hoax, as bitcoin basically is,” but predicted the “incredible euphoria” around it wouldn’t last. Still, he suggested it could prove to be as revolutionary as the internet over the next few decades.
Grantham also issued a grim forecast for the US economy, despite solid GDP growth of 3.3% in the fourth quarter, unemployment and annualized inflation below 4% in December, and the prospect of several cuts to interest rates this year. On the other hand, the inverted yield curve and prolonged declines in leading economic indicators point to trouble ahead.
“The economy will get weaker,” he said. “We’ll have, at least, a mild recession.”
Grantham also flagged the threat posed by conflicts in Ukraine and the Middle East, warning that wars can foster a geopolitical backdrop that’s “scary as hell and in which bad things can happen.” The backdrop is especially worrying when assets are at record highs, he added.
“What I specialize in other than bubbles are long-term, underrated negatives,” Grantham said. “And my God, there’s a rich collection of negatives right now.”
The bubble guru urged investors to be careful, and recommended they seek out undervalued assets in emerging markets like Japan, depressed sectors like natural resources, and growth areas like climate-change solutions.
It’s worth emphasizing that Grantham’s dire forecasts haven’t hit the mark in recent years. For example, he suggested in April that the S&P 500 could be cut in half to around 2,000 points in a worse-case scenario, but the benchmark stock index has surged to an all-time high of over 4,900 points since then.
Read the original article on Business Insider
The scale of derivatives held by major banks like JPMorgan Chase & Co., Citibank and Goldman Sachs, amounting to $203 trillion, has raised concerns about the potential risks these positions might pose to the global economy. The third-quarter Quarterly Report on Bank Trading and Derivatives Activities, published by the Office of the Comptroller of Currency, provides a comprehensive dive into this issue.
This figure surpasses the world’s gross domestic product (GDP) by roughly double, highlighting the enormity of the market.
JPMorgan Chase, in particular, is noted for its substantial exposure to derivatives risk, topping the list with roughly $58 trillion in derivatives. The mounting scale of derivatives owned by banks raises several questions and concerns among regulators and investors.
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The 15-digit number has recently drawn speculation among retail investors on social media platforms like Reddit and TikTok. But as recently as March 9, 2023, Congress held a hearing on managing volatility in global commodity derivatives markets.
A derivative is a contract that derives its value from the performance of an underlying entity. This underlying entity can be an asset, index or interest rate. Derivatives can be used to offset risks in the future or used as leverage to increase gains or losses.
But it’s unlikely the banks are the ones holding these derivatives. Rather, many of the top banks act as market makers for entities buying and selling derivatives.
While these banks have large derivative positions on their balance sheets, the notional value is a fraction of the total derivatives market. This is because there are typically two sides to every trade: a short and a long. Because each side has a bullish and bearish position, the total size of the derivatives market doesn’t necessarily correlate to risk.
Trending: Copy and paste Mark Cuban’s startup investment strategy according to his colorful portfolio.
According to the Federal Reserve, the total long exposure for financial derivatives for hedge funds, for example, has remained largely unchanged since being tracked in 2012. There was a large spike between 2017 and 2018, but as the total derivatives market size increased, the notional value slowly approached 0. Hedge funds have a total long exposure of about $1 trillion.
The banks likely don’t hold exposure to most of these individual positions. They are market makers for these transactions and largely facilitate the transactions between parties. Those parties often use the derivatives market to manage risk by hedging their bets or using swaps to limit future exposure.
This isn’t to say there isn’t significant market exposure to derivatives. By all metrics, the use of derivatives is increasing. Between the first quarter of 2022 and the third quarter of 2023, the notional amounts of derivatives increased by about $10 trillion. If an entity mismanages its risks and becomes too exposed to derivatives, there could be risks associated with those trades. But regulatory measures like the Dodd-Frank Act and higher capital requirements imposed by the Federal Reserve are regularly used to mitigate such risks.
A larger concern is the lack of reporting and availability of data surrounding the derivatives market. For example, a recent BIS article highlighted the growing trillions in missing debt created by certain derivatives. Forex swaps, forwards and currency swaps create debts that don’t appear on balance sheets and most debt statistics. Swaps such as these are an underlying common denominator for many financial crises and shocks to the system, causing entities to fail or creating funding squeezes. These off-sheet debts are estimated to be at a staggering $97 trillion globally across all currencies and growing fast.
The lack of reporting for these debts makes it difficult to predict future recessions and make policy regulating derivatives.
The $203 trillion in derivatives held by major banks underscores a complex financial landscape where the interplay of risk management and market speculation is pivotal. While banks often act as intermediaries rather than principal holders, the sheer size of these positions raises questions about systemic risk and market stability.
Regulatory frameworks and reporting standards, although improved, still face challenges in fully capturing the nuances of the derivatives market. The need for enhanced transparency and oversight in the sector remains critical, particularly in light of the growing off-balance-sheet debts that continue to elude conventional monitoring mechanisms.
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The crypto market has recently been a roller coaster, especially in H2 2023. Solana, a high-throughput blockchain, emerged as one of the best performers in the top 10 coins by market cap.
In Q4 2023, Solana soared, reaching highs of around $125 before cooling off to spot rates. However, some think the uptrend is over, with SOL edging lower under increasing liquidation pressure.
Lido.eth, while taking to X on January 7, said Solana is a “Q4 2023 bubble” that has “already popped.” The analyst added that this formation doesn’t mean SOL is “worthless or won’t be used anymore.” However, based on Lido.eth’s assessment, the Solana “growth story has ended,” calling serious questions into the project’s immediate potential.
In H2 2023, Solana grew on renewed interest in the high-performance blockchain. Propelled by rising activity in decentralized finance (DeFi) and non-fungible token (NFT) scenes, SOL reversed losses recorded in November 2022.
Moreover, as the crypto community tracked the Securities and Exchange Commission (SEC) and whether they would approve the first spot Bitcoin ETF, altcoins, including SOL, became major beneficiaries.
Arthur Hayes, the founder of the cryptocurrency exchange BitMEX, also believes that the Solana rally is over. In December 2023, Hayes tweeted that he had rotated funds from Solana to Ethereum, citing “divine inspiration.” The BitMEX co-founder also said ETH may rally to reach $5,000 but without giving a specific timeline as to when this lofty target will be reached.
Despite these bearish sentiments, some Solana supporters believe the platform has a “bright future.” They point to the upcoming launch of the Firedancer client.
This validator client will make the network more robust and increase efficiency. It will aim to decentralize Solana further, making it more reliant by eliminating weak points resulting from client concentration. From a price action perspective, continuing the overall crypto uptrend could also buoy SOL prices in 2024.
Looking at the Solana price chart, the uptrend remains, but sellers dominate, at least in the short term. To quantify, SOL is down 30% from the December 2023 peak when it topped at around $125.
With prices trending inside the bear bar of January 3, sellers have the upper hand from an effort-versus-result perspective. For the uptrend to resume, there must be a clear, high-volume close above $100. If not, steep losses below $85 might trigger a sell-off that could price toward $60 or worse.
Feature image from Canva, chart from TradingView
Disclaimer: The article is provided for educational purposes only. It does not represent the opinions of NewsBTC on whether to buy, sell or hold any investments and naturally investing carries risks. You are advised to conduct your own research before making any investment decisions. Use information provided on this website entirely at your own risk.
Silicon Valley legend John Chambers is sold on artificial intelligence, but he sees choppy times in its near future.
“Going into 2024, it will be the decade of AI in front of us, which will dwarf the size of the internet and cloud eras combined,” Chambers, who runs venture fund JC2, said in an interview Monday.
“Is it a bubble? Yeah. There are too many players, and the majority of [AI companies] will fail, but it is worth the bet,” Chambers warned. All 20 of his startups have an AI strategy, he added.
Indeed, the AI innovation wave is sweeping the U.S. and the rest of the world, allowing places like West Virginia and India to “play at a different level,” Chambers said.
Before, “if you weren’t in Silicon Valley or New York or maybe Austin, you could not participate,” he said. “West Virginia is now the No. 3 state in the U.S. in terms of percentage growth for the number of startups.”
“In India, pre-[Prime Minister Narenda] Modi, it was the slowest-moving democracy,” Chambers said. “Now, it is the most innovative in the world and most optimistic. It will become the No. 1 GDP country in the world within 30 to 40 years.”
In what has become an annual tradition for the former longtime Cisco Systems Inc.
CSCO,
chief executive, Chambers dusted off his crystal ball and made his usual bold predictions for the year ahead in tech.
What he sees is a rebounding stock market — “I’m more optimistic than in two years for a soft landing and a reasonably good year,” he said — and increased M&A activity leading to a resurgence in initial public offerings after a long rough patch. Accelerating it all is AI, which he deems transformative and essential for the survival of Fortune 500 companies, most of which he believes will fade away in a couple decades regardless.
The pressure is on, in an escalating digital arms race that entered a new phase with a groundbreaking product last week. Alphabet Inc.’s
GOOGL,
GOOG,
Google unfurled Gemini as the company’s “largest and most capable AI model” — one designed to supercharge everything from Google’s consumer apps to Android smartphones.
Read more: Gemini, Google’s long-awaited answer to ChatGPT, is an overnight hit
Though he foresees staggering innovation from Gemini with a major impact on the AI playing field, C3.ai Inc.
AI,
CEO Tom Siebel contends it’s anyone’s race to win. “It could be OpenAI, Anthropic, Google or someone else. It will take three to four years to shake out,” he said in an interview last week. The billionaire pointed to the success of companies like Microsoft Corp.
MSFT,
Intel Corp.
INTC,
Amazon.com Inc.
AMZN,
and others that “came out of nowhere” to become dominant vendors in their respective fields.
Chambers agrees it is a “completely wide-open competition,” but Apple Inc.
AAPL,
Google, Microsoft and Amazon could “crush competition” in their zeal to sew up the market.
Rakesh Malhotra, a former Microsoft executive who is co-founder of consulting firm Nuvalence, believes Apple will “crash the AI party” with a “flood of AI-first products.” He believes Apple, which makes its own chips and is a leader in privacy and data, will incorporate AI capabilities into the iPhone after rivals establish the AI market.
“Your entire life is on your phone, and they (Apple) vow to protect your data,” Malhotra said in an interview.
There will be bumps in the road, Chambers acknowledged, ranging from legislation to government oversight as Big Tech scrambles to dominate AI.
European Union policymakers agreed Friday on the AI Act, comprehensive regulation for artificial intelligence that makes the E.U. the first governing body to pass AI legislation of its kind. It covers AI’s riskiest uses by companies and governments, including those for law enforcement and the operation of crucial services like water and energy.
Vijay Balasubramaniyan, co-founder and CEO of Pindrop, a cybersecurity firm funded by Chambers’s VC firm, was among those who attended an AI forum hosted last week by Sen. Chuck Schumer, the New York Democrat. The top concern at the meeting was deepfakes, or misleading video clips created in AI that are being used to influence commerce, social media and online communications.
The EV Bubble Has Popped. There’s No Denying the Numbers.
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