I’m seeing about three new videos on my YouTube timeline every day about the AI bubble, and with the S&P 500 dropping about one percentage point this morning, it felt like a good time to put my own opinion into writing.
I think what has shaped my opinion about the financial markets in tech the most is the fact that people have been hyping up virtual reality so much. Right after the crypto bubble, there was this whole metaverse/augmented-reality/virtual-reality theme for a pretty long time that Meta even changed its name for. And so many of the people in my network would say things like, “Yeah, well, it might not be great now, but it’s a first-generation product.” I think YouTubers and news people are also to blame here because they started to buy into the hype, and they started to hype up a product that could be rather than a product that is right now. I specifically remember watching a video from MKBHD the other day, when this Neo robot came out, and he said, “We are starting to sell products that could be rather than products that are right now. So they are selling you a product today for pre-order with capabilities that probably won’t even be there next year.” He compared it to the Rabbit R1 and the Humane Pin.
I think it’s sort of ironic that the tech reviewers are complaining about future capabilities being sold when they’re the ones who parroted the narrative that this is just a first-generation product and it’s going to get so much better. We used to live in a world when people only got excited about things that were real People loved the iPhone because of what it could do, not what it could become. Then, all of a sudden, people were like, “Oh, but what’s next? What’s going to be after the iPhone? What device am I going to be using in 10 years?”
I would like to claim that I had this opinion before reading Antifragile, the book by Nassim Nicholas Taleb, but in reality it might well have come from that book, so who knows: The future is going to look a lot more like the present than what we imagine the future will look like.
All the best things in your life are probably things that people have been doing for thousands of years. You don’t look back on last year and remember all the great videos you saw on YouTube on your brand-new MacBook, but you remember the fun nights that you spent at your friend’s apartment that was built centuries ago, not in the last quarter. You remember the nights out when you went to restaurants, wearing an outfit that looks different from what people wore in the ’90s, but they would definitely still recognize it as clothes. And the act of going to a restaurant on a night out with a couple of friends is certainly something they did as well.
I’m just paraphrasing Taleb’s point, but ultimately I think it is important to recognize that the narrative claiming things will change so drastically that we already have to live in the future and imagine what things might be (because otherwise we’re going to be behind) is not how humanity used to think. We are all part of a generation that lived through the insane innovation that happened with the internet and even more so the smartphone, so it primes us for the next dopamine hit, the next insane thing that’s going to change our lives a lot. We’re craving it so much that we spend more time thinking about it than thinking about the technology and all the things that are here now.
All of this is true to an even greater degree for investors in Silicon Valley. They have been a huge influence on the narrative and the developments in technology, and they make money by predicting the future, or at least by being optimistic about it.
I think it’s a cycle where investors invest in companies that could become big, then they need them to succeed. So they spend a lot of money on marketing and media coverage, which creates a public sentiment that things will change a lot in the future and that these companies will be the next big thing: the next iPhone, the next scratching of the itch for some technology to change your life a lot.
Then this public sentiment fuels investors even more, because, of course, they have to be ahead of the curve and think about the future even more. So investors and the public together are hyping each other up, thinking that the next big thing is around the corner.
I believe it is this attitude that has served as fertile breeding ground for all the big hypes in tech that I can remember, and all the money that was lost because of companies investing in the future when none of these bets turned out right. The first one I remember was the 3D printing wave. Then we turned to IoT, then the first AI boom with machine learning classifiers, which then turned into the blockchain bubble, which became NFTs, which became the metaverse, AR, and virtual reality. Now, finally, we’re arriving at AI.
I don’t know if this endless cycle in the search for the next big new thing is ever going to be sustainable, or if the music is ever going to stop and people are going to realize that there is no new big thing for at least a while and that they are not going to be the investor who becomes filthy rich off it. If this sentiment changes, and investing in tech companies becomes less of a fun pastime and investors don’t continue to put money into new companies in the space, then the tech sector, which has been propping up the S&P 500 even before the Magnificent Seven became such a big deal and talking point, is going to take a hit, and so is the entire economy. So that’s why I fundamentally believe that there is a huge game of musical chairs right now, which only works if we continue hyping each other up about the next thing that’s totally going to change the world. And every time, it seems that the story is getting bigger and bigger. I think the hangover after NFTs and crypto could have been way worse if investors hadn’t smoothly pivoted their expertise from being blockchain experts to AI experts.
The irony in all of this is that I think AI is actually a useful technology, but the degree to which we’ve hyped it up, and propped up the entire American economy on the hope that the earnings of these insanely big companies are going to grow 10- or 100-fold, is making this pretty useful and reasonable technology our biggest and most unstable bubble yet. I personally don’t think there’s any way out anymore that is not going to result in a huge financial market crash.