The A.I. Bubble
There is a lot of money flowing into AI startups. The sign of the times is Nvidia, a public company, that is now worth around 1.7T dollars, which gives it a 100 P/E. Even considering high growth for Nvidia, there is a low likelihood that the company will grow into its valuation for the short term.
The same is happening in the private markets but to a higher degree. Startups can have much higher valuations compared to their revenues. And some of them are fueled by non-traditional investors, giving cloud credits or loans instead of cash.
That doesn’t mean that there are some companies that will be transformative and will turn out to be great investments in the next 10 years. There are some great AI startups that are category defining companies. OpenAI and Harvey come to mind when thinking about great companies.
We will see all this play out and as Buffett says: “Only when the tide goes out do you discover who’s been swimming naked”.