I enjoyed this from Marathon on the AI capital cycle:
"Where once those same asset allocators were able to diversify their domestic exposure through
investment into other global equity markets, index focused alternatives now offer little in the
way of genuine differentiation, dominated as they are by what has essentially become, in the
case of emerging markets, a higher beta version of the same theme."
https://t.co/UgSPTRNK6p
@pansareV@EconomPic@jaypelosky There was plenty of “real demand” back in 2000 also.
Sun was making boatloads of money selling servers and workstations. For a while.
One of the reasons for the current rally is that there are many non-tech-savvy fund and asset managers sitting on trillions of dollars in assets that are slowly realising AI exists.
These people literally learned about Claude or agents in the last few weeks. And maybe even tried them.
And got an awakening.
To understand why that matters, you need to realise that the “average asset manager” in the UK or EU is barely able to turn on his computer. They have an “IT support guy” for that. They couldn’t tell you Windows from MacOS. Yet they manage $ trillions of pension assets on.
These people are always late to every trend. But every trend, they eventually join.
And they only now discovered that AI exists, and what it actually does. That “AI” is not just being an irritating chatbot in their “Windows” on “Outlook” on the big HP desktop in their office.
It’s also genuinely very hard for them to understand the growth rates, the incredibly high GAAP operating margins, and the relatively low P/E valuations in the semiconductor sector (low vs all other growth tech).
You see, in the past, every sector with dramatic growth had terrible, extremely negative margins (see SAAS, e-commerce, renewables, anything in the 2021 SPAC bubble, etc). Profits were always promised to “come later”, and usually, they never actually did.
Meanwhile, we now have a cloud and semiconductor sector that’s incredibly high growth, yet also has extraordinary margins and cash flows not seen anywhere else in the business world, anywhere. Ever.
In financial and economic terms, it’s simply unprecedented.
They’ve never seen numbers like this, so it’s mentally very hard for “the average asset manager” to grasp them.
Now, they’re seeing the use cases. The output. They’re seeing the numbers.
And they’re waking up.
$xle +30% YTD
It’s been a great year and you are still in the early innings of a 10+year run.
Energy stocks are 3% of the index. Still near record lows while the tech industry is currently building its own shale bubble.
Historic opportunity.
Is AI a bubble?
Yes. Next question.
While the bubble deniers need to write a wall of text justifying parabolic up moves, one glance at the chart proves this is historic bubble territory.