The Dot.com bubble. Say this to an old school banker and watch them shiver. They may even temporarily put down their gin and tonic. The dot.com memory is like throwing a slimy bucket of cold goo over investors of a certain age. So, what happened?
Well, basically, everyone invested heavily in something that sounded amazing – the internet. But … they realised a bit later that there wasn’t really a solid business model for generating profit. At least, not at that point. And any returns were nowhere near the insane amount of money that investors were throwing into developing it.
90s vibes are coming back?
It began to dawn on these 90s investors that maybe they had got too excited with their funds. Their eyes shifted over to Ask Jeeves. Was this random butler man really going to deliver eye-watering returns? Or was he just going to continue standing there and glitching? Would people really say, “hang on, I’ll yahoo it” one day? Doubts settled in.
Before you could say “Spice up your life”, they’d hitched up their flares, legged it over to their landlines, called their brokers and withdrawn the funds. The bubble had popped. Investors lost $5 trillion. Ouch.
Our inner cow brain
Bubbles are an interesting social phenomenon, because they are not really financial at all… they are totally psychological. Have you ever seen loads of cows or sheep moving in the same direction and then just stop? (If you are Welsh countryside like me, my question to you is, have you ever NOT seen that?). That is herd mentality. And the stock market has way more to do with our inner cow and sheep brains than we’d like to admit. Baaaaaaaaad for emotional investing 🐑.
So… We see one guy invest in the internet. Another person invests in the internet. The share price goes up. We get our purse out. Another person has invested. Someone is banging on about the internet on TV. We make a small investment. There’s another internet company that is gathering investment. We pop something in that one too. Before you know it, we are balls deep in herd mentality investing without a pair of wellies.
So, that brings to me Artificial Intelligence. Wonderful, isn’t it? If you ignore the haunting fact that it creates 28 times more carbon emissions than a google search. It really is incredible.
Is AI worth $110 billion … each year?
People are investing in AI. And by people… I mean us. Institutional investors are going to town. Around 10% of UK pension pots are invested in the Magnificent Seven (US tech firms with AI as a major focus). They make up a significant portion of our index funds, like the S&P500 or NASDAQ… so passive investors and pension holders will probably be investing twice. AND our public money is going there too. Tesla, for example, gets $8 million a day in taxpayers’ money.
The amount of money we’re pouring into it is INSANE. Investments in AI-companies hit $110 billion in 2024 alone. Nvidia, which creates the chips for AI, has a market valuation of over $3 trillion. More than the entire GDP of the UK (£2.56 trillion).
So, here’s the thing… Is it worth it? Do you think that the people who have invested in AI companies will get it all back, plus profit? Or is it a bubble?
The AI world already pooped itself in January
A teeny, tiny unknown Chinese company called DeepSeek produced a better AI bot with old chips and less than $6 million… in just two months. It left the multi-billion-dollar Big Tech firms looking ridiculous. Zuckerberg hasn’t looked that stupid since his Caesar haircut.
But that’s not all. In one of the most badass moves to date, DeepSeek made the technology open source, so anyone can copy the code. Brutal. In other words, our very expensive thing is being given out for free. Can we get any money back?
DeepSeek was the first pin that the AI bubble landed on. It didn’t pop. But it squeaked. Like the cows and sheep that we are, at the first sign of a bubble, droves of investors dived onto their trading platforms and liquidated everything in a panic.
Poor Nvidia lost $6 billion off its valuation in a single day. The largest 24-hour sell-off in history. Through gritted teeth CEO Jensen Huang had to smile and say that DeepSeek is a really great technology. Bet that was a toughie.
Trump is funding the industry with contracts – will it last?
The AI bubble didn’t pop. But … that’s not because the business model holds up necessarily. The industry is being held up by billions of dollars worth of government contracts. This is alarming, because President Trump has a habit of pulling out of contracts, commitments and deals that he doesn’t like.
Last week, we already got a glimpse of what would happen if AI government contracts came to an end. Palantir Technologies generates 60% of its revenue from government contracts – mostly military. When military spending was abruptly cut in mid-Feburary, Palantir’s share price hit the deck, plunging by 37%. Yikes.
If the last quarter has taught us anything, it’s that technology stocks are jumpy as f**k right now. It’s a fragile industry. Hundreds of billions of dollars can crash down in a single day. Unfortunately, a lot of that is our retirement fund.
Umm…. Are our pensions propping up a stinky bubble?
Investors are sneaking out of the AI game, like the Pink Panther escaping a bad smell. It’s kind of amusing, kind of obvious, but also, you’re left wondering why you’re not leaving too.
If 10% of our pensions are already in AI, what if the multi-billion return on investment never happens? That would mean that we have less money to retire with. Our income decreases. Our parents’ income decreases. We all get poorer.
I mean… it could deliver. The same way that the internet did, in the end, deliver. But I don’t know.
If we’re going to artificially keep a bubble alive for the sake of investment, can’t it be a natural bubble? … Hydropower, clean waterways or sustainable fisheries? If we’re going to take this much of a risk, why not go for something sustainable that will support our planet and give us a good future?
The dot.com bubble already blew up in our 90s faces. The AI version could be about to kick us right up the retirement arse. 🍑
