Notes from the AI Bubble 🎐

Meta, Tesla point to red flags of an overvalued BigTech sector.

Hello Everyone,

Today I want to talk about AI and the stock market.

If you don’t think the stock market is in an AI bubble, pay some attention to Tech Earnings this week and the next. It’s April 25th, 2024 and it’s going to be a truly bizarre Q1 Earnings season.

While mentioning AI on Earnings' calls worked out well in the recent past, in my estimate, even BigTech are over-investing in Generative AI in 2024. Remember when Tesla claimed it was an AI company? Tesla's free cash flow was negative $2.5 billion in the quarter, a shocking 674% year-over-year drop. And yet, Elon Musk continues to try to sell us a Robotaxi dream and insist that Tesla is a technology company, and not just a EV car manufacturer with some bells and whistles. His promises better pan out, Tesla’s stock is already down 35% this year.

Meta’s stock that has been up a remarkable 137.7% in the past year, and while 98% of its revenue is from digital advertising, it also coincidentally thinks its an AI-Metaverse company. Meanwhile how is Meta’s R&D actually going? Meta’s Reality Labs unit, reported sales of $440 million for the first quarter and $3.85 billion in losses. The division’s cumulative losses since the end of 2020 have topped $45 billion. Now with Meta getting more aggressive with these Llama models, it’s also insisting it’s investing in Generative AI as a leader in the field.

What could possibly go wrong for the hyperscalers weaving AI dreams and unrealistic expectations for their shareholders?

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