this post was submitted on 06 Sep 2024
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[–] [email protected] 76 points 3 months ago* (last edited 3 months ago) (3 children)

The stock market is not based on income. It's based entirely on speculation.

Since then, shares of the maker the high-grade computer chips that AI laboratories use to power the development of their chatbots and other products have come down by more than 22%.

June 18th: $136 August 4th: $100 August 18th: $130 again now: $103 (still above 8/4)

It's almost like hype generates volatility. I don't think any of this is indicative of a "leaking" bubble. Just tech journalists conjuring up clicks.

Also bubbles don't "leak".

[–] [email protected] 20 points 3 months ago (2 children)

Also bubbles don't "leak".

I mean, sometimes they kinda do? They either pop or slowly deflate, I'd say slow deflation could be argued to be caused by a leak.

[–] [email protected] 6 points 3 months ago (1 children)

We taking about bubbles or are we talking about balloons? Maybe we should change to using the word balloon instead, since these economic 'bubbles' can also deflate slowly.

[–] [email protected] 6 points 3 months ago

Good point, not sure that economists are human enough to take sense into account, but I think we should try and make it a thing.

[–] [email protected] 2 points 3 months ago (1 children)

I've never seen a bubble deflate, but I digress.

[–] [email protected] 1 points 3 months ago (1 children)

You can do it easily with a balloon (add some tape then poke a hole). An economic bubble can work that way as well, basically demand slowly evaporates and the relevant companies steadily drop in value as they pivot to something else. I expect the housing bubble to work this way because new construction will eventually catch up, but building new buildings takes time.

The question is, how much money (tape) are the big tech companies willing to throw at it? There's a lot of ways AI could be modified into niche markets even if mass adoption doesn't materialize.

[–] [email protected] 1 points 3 months ago (1 children)
[–] [email protected] 2 points 3 months ago (1 children)

You do realize an economic bubble is a metaphor, right? My point is that a bubble can either deflate rapidly (severe market correction, or a "burst"), or it can deflate slowly (a bear market in a certain sector). I'm guessing the industry will do what it can to have AI be the latter instead of the former.

[–] [email protected] 1 points 3 months ago* (last edited 3 months ago) (1 children)

Yes, I do. It's a metaphor that you don't seem to understand.

My point is that a bubble can either deflate rapidly (severe market correction, or a "burst"), or it can deflate slowly (a bear market in a certain sector).

No, it cannot. It is only the former. The entire point of the metaphor is that its a rapid deflation. A bubble does not slowly leak, it pops.

[–] [email protected] 1 points 3 months ago (1 children)

One good example of a bubble that usually deflates slowly is the housing market. The housing market goes through cycles, and those bubbles very rarely pop. It popped in 2008 because banks were simultaneously caught with their hands in the candy jar by lying about risk levels of loans, so when foreclosures started, it caused a domino effect. In most cases, the fed just raises rates and housing prices naturally fall as demand falls, but in 2008, part of the problem was that banks kept selling bad loans despite high mortgage rates and high housing prices, all because they knew they could sell those loans off to another bank and make some quick profit (like a game of hot potato).

In the case of AI, I don't think it'll be the fed raising rates to cool the market (that market isn't impacted as much by rates), but the industry investing more to try to revive it. So Nvidia is unlikely to totally crash because it'll be propped up by Microsoft, Amazon, and Google, and Microsoft, Apple, and Google will keep pitching different use cases to slow the losses as businesses pull away from AI. That's quite similar to how the fed cuts rates to spur economic investment (i.e. borrowing) to soften the impact of a bubble bursting, just driven from mega tech companies instead of a government.

At least that's my take.

[–] [email protected] 1 points 3 months ago (1 children)

The AI bubble is never going to "pop" for Nvidia because they're not dependent AI. Other than slightly modifying the design of their chips. When the AI bubble does pop Nvidia will just go back to selling cards to gamers and professionals. They'll be the biggest profiteer of the bubble.

[–] [email protected] 2 points 3 months ago (1 children)

A lot of Nvidia's stock price is based on AI demand. If that evaporates, Nvidia's stock price would drop back to where it was before AI became a major profit driver. The big players will fight to keep AI business going, so I think we'd be in for a pretty soft landing there.

[–] [email protected] 1 points 3 months ago (1 children)

I didn't say anything about their stock price...

[–] [email protected] 0 points 3 months ago (1 children)

"Bubbles" are typically defined by stock/commodities prices. The 2000 dotcom bubble was defined by investor losses, the 2008 housing bubble was defined by housing price drops, etc. So an AI "bubble" will be quantified by stock prices of AI-related companies, like Nvidia.

I think the stock price will be at least partially supported by spending by the big tech companies trying to keep AI relevant. So I expect less of a "pop" and more of a gradual deflation.

[–] [email protected] 0 points 3 months ago (1 children)

Incorrect. It's defined by profits and losses, which the losses typically precede drop in stock values.

[–] [email protected] 2 points 3 months ago

I think the opposite is true. Stock values factor in expected future earnings, so if the market seems to be shifting, the stock price will generally drop before the disappointing earnings report comes in.

[–] [email protected] 12 points 3 months ago (1 children)

The broader market did the same thing

https://finance.yahoo.com/quote/SPY/

$560 to $510 to $560 to $540

So why did $NVDA have larger swings? It has to do with the concept called beta. High beta stocks go up faster when the market is up and go down lower when the market is done. Basically high variance risky investments.

Why did the market have these swings? Because of uncertainty about future interest rates. Interest rates not only matter vis-a-vis business loans but affect the interest-free rate for investors.

When investors invest into the stock market, they want to get back the risk free rate (how much they get from treasuries) + the risk premium (how much stocks outperform bonds long term)

If the risks of the stock market are the same, but the payoff of the treasuries changes, then you need a high return from stocks. To get a higher return you can only accept a lower price,

This is why stocks are down, NVDA is still making plenty of money in AI

[–] [email protected] 1 points 3 months ago* (last edited 3 months ago) (1 children)

There's more to it as well, such as:

  • investors coming back from vacation and selling off losses and whatnot
  • investors expecting reduced spending between summer and holidays; we're past the "back to school" retail bump and into a slower retail economy
  • upcoming election, with polls shifting between Trump and Harris

September is pretty consistently more volatile than other months, and has net negative returns long-term. So it's not just the Fed discussing rate cuts (that news was reported over the last couple months, so it should be factored in), but just normal sideways trading in September.

[–] [email protected] 1 points 3 months ago (1 children)

We already knew about back to school sales, they happen every year and they are priced in. If there was a real stock market dump every year in September, everyone would short September, making a drop in August and covering in September, making September a positive month again

[–] [email protected] 2 points 3 months ago (1 children)

It's not every year, but it is more than half the time. Source:

History suggests September is the worst month of the year in terms of stock-market performance. The S&P 500 SPX has generated an average monthly decline of 1.2% and finished higher only 44.3% of the time dating back to 1928, according to Dow Jones Market Data.

[–] [email protected] 1 points 2 months ago (1 children)

S&P 500 up this September officially

[–] [email protected] 2 points 2 months ago (1 children)

Woo! We're part of the 44% or so. :)

[–] [email protected] 2 points 2 months ago

45% now since the data only goes back 100 years

[–] [email protected] 4 points 3 months ago

Its all vibes and manipulation