Are We in an AI Bubble?
Summary
TLDRNvidia's Q1 2024 earnings report reveals a 262% year-on-year revenue increase, driven by demand for Hopper GPUs and Blackwell chips, boosting its stock by 20%. This video explores whether the AI boom, which has sent the S&P 500 soaring, is a bubble. It presents arguments for and against, highlighting technological advancements and market valuations. The video emphasizes the unprecedented nature of generative AI and its potential economic impact, while also noting skepticism about AI's plateau and market overvaluation. It concludes by suggesting AI might be a revolutionary technology that takes longer to mature, similar to past tech bubbles based on genuine innovation.
Takeaways
- 📈 Nvidia's Q1 2024 earnings report revealed a 262% year-over-year increase in quarterly revenue, driven by demand for Hopper GPUs and new Blackwell chips.
- 🚀 Nvidia's stock price soared by about 20% post-earnings report, doubling since the start of the year and multiplying tenfold since October 2022.
- 🤖 The rapid rise in Nvidia's stock, along with other AI-focused tech companies, has raised concerns of a potential AI bubble in the market.
- 🧐 Arguments against the AI bubble suggest that generative AI is a revolutionary technology deserving of high investments and valuations, with potential to significantly boost global GDP growth.
- 🏆 The 'Magnificent 7' companies (Tesla, Meta, Alphabet, Apple, Amazon, Nvidia, and Microsoft) have captured most of the AI-related gains and are not considered drastically overvalued.
- 📊 Nvidia's 2-year forward PE ratio stands at 27, which is high but not absurdly so, compared to Cisco's 100 during the dot-com bubble.
- 💭 Counterarguments propose that AI might not live up to its hype, pointing to a plateau in AI development and a lack of clear use cases.
- 📈 Despite the aggregate PE ratio of the 'Magnificent 7' not changing significantly, individual companies like Nvidia have seen substantial increases in market value.
- 💬 The rise in AI's popularity is evident in the exponential growth of AI mentions in earnings calls and the increasing interest from venture capital in AI startups.
- 🔮 The outcome of whether the AI boom is a bubble remains uncertain, with historical examples showing both revolutionary technologies and speculative bubbles.
- 📚 The video encourages viewers to develop analytical skills, promoted by Brilliant, a STEM learning platform offering courses in programming, math, data analysis, and AI.
Q & A
What was Nvidia's performance in the first quarter of 2024 according to their earnings report?
-Nvidia massively outperformed expectations with quarterly revenue soaring by 262%, driven by massive demand for its current generation Hopper GPUs and its new Blackwell chips.
How did Nvidia's stock perform following the release of their earnings report?
-Nvidia's stock price soared, with shares trading about 20% higher than they were pre-earnings, and overall, the stock has doubled since the beginning of the year and multiplied tenfold since October 2022.
What concerns have been raised regarding the rapid increase in stock prices of AI-related companies?
-The rapid increase in stock prices, not just for Nvidia but also for other AI adjacent tech companies, has sparked fear that the AI boom might be a bubble, potentially leading to a market crash.
What are the two main types of arguments presented in the video regarding the AI boom being a bubble?
-The two main types of arguments are a technological argument, questioning whether AI is truly revolutionary, and a financial argument, discussing whether the stock market is currently in a bubble state.
What is the counter-argument to the claim that AI is a bubble based on technological advancements?
-The counter-argument is that generative AI is an unprecedented technology that justifies the large investments and valuations seen in recent years, with platforms like ChatGBT gaining massive user bases rapidly and the potential to significantly boost economic growth.
How does the video address the absence of 'bubble-like' companies during the AI boom?
-The video points out that unlike previous bubbles, where many companies with little substance achieved high valuations, most of the AI-related gains have been captured by established companies known as the 'Magnificent 7', which are not typically seen as bubble companies.
What is the 'Magnificent 7' referred to in the video?
-The 'Magnificent 7' refers to Tesla, Meta, Alphabet, Apple, Amazon, Nvidia, and Microsoft, which are the major companies capturing most of the AI-related gains and are not considered bubble companies.
How does the video compare Nvidia's current situation to Cisco during the Dot-com bubble?
-The video compares Nvidia's focus on building infrastructure for AI to Cisco's focus on internet hardware during the Dot-com bubble. It notes that while Cisco's valuation was extremely high at the peak of the bubble, Nvidia's current valuation, though high, is not absurdly so.
What is the argument against AI being a bubble based on the market value of the 'Magnificent 7'?
-The argument is that even though the market cap of these companies has risen steeply, their price-to-earnings ratios have not changed drastically, suggesting that their valuations are not drastically overvalued despite recent growth.
What is the final perspective presented in the video regarding the AI boom and potential bubble?
-The video suggests that it's possible both sides could be right to some extent. Some bubbles are purely speculative, while others are based on revolutionary technologies but with market enthusiasm outpacing the actual development of the industry. AI might be a revolutionary technology that takes longer to mature than expected.
How does the video relate to the importance of analytical skills in the age of AI and data?
-The video emphasizes that as our world becomes more driven by AI and data, analytical skills will be increasingly important for various jobs, and platforms like Brilliant can help individuals develop these skills through STEM learning.
Outlines
📈 Nvidia's Impressive Q1 2024 Earnings and AI Boom Concerns
The video discusses Nvidia's outstanding Q1 2024 earnings report, which revealed a 262% year-on-year increase in revenue, primarily due to demand for their Hopper GPUs and new Blackwell chips. This success led to a 20% stock price surge, doubling the stock value since the beginning of the year and increasing tenfold since October 2022. However, the rapid climb has raised concerns about a potential AI bubble, with the S&P 500 reaching unprecedented highs due to the AI boom. The video aims to explore whether this boom is a bubble, presenting arguments for and against the notion, and emphasizing that it's a topic of debate with no definitive answer. The video also advises viewers not to take investment advice from YouTubers and encourages subscribing for updates.
🤖 The Debate on AI as a Revolutionary Technology or a Bubble
The video script delves into the debate surrounding AI's potential as a revolutionary technology or a speculative bubble. It presents arguments that AI, particularly generative AI, is unprecedented and justifies the significant investments and valuations seen recently. It cites examples like Chat GBT's rapid user growth and bullish predictions by Goldman Sachs and McKenzie about AI's impact on economic growth. The script also argues that the market gains have been concentrated among the 'Magnificent 7' tech companies, which are not drastically overvalued despite recent increases in market cap. It compares Nvidia's current situation to Cisco during the dot-com bubble, suggesting that while valuations are high, they are not absurd. The counter-argument presented suggests that while the PE ratio for the 'Magnificent 7' hasn't drastically changed, certain companies have seen bubble-like increases in market value, and there is an assumption of continued dominance in the chip market that may not hold. The video concludes by highlighting the uncertainty and the possibility that AI could be a revolutionary technology that takes longer to mature than currently anticipated.
Mindmap
Keywords
💡Nvidia
💡Earnings Report
💡Stock Market
💡AI Boom
💡Generative AI
💡Productivity Growth
💡Global GDP Growth
💡Magnificent 7
💡Price-to-Earnings Ratio (PE Ratio)
💡Corporate Fad
💡Brilliant
Highlights
Nvidia released its earnings report for Q1 2024, showing a 262% year-on-year increase in quarterly revenue.
Demand for Nvidia's current Hopper GPUs and new Blackwell chips drove the revenue surge.
Nvidia's stock price increased by about 20% following the earnings report.
Nvidia's stock has doubled since the beginning of 2024 and multiplied tenfold since October 2022.
The rapid increase in stock prices of AI tech companies has raised concerns of a potential bubble.
The video discusses whether the AI boom is a bubble and presents arguments for and against this idea.
Generative AI is considered a revolutionary technology with significant potential investments and valuations.
Chat GBT reached 100 million monthly users in just 2 months, indicating rapid AI platform adoption.
Goldman Sachs predicts AI could double the rate of US productivity growth.
McKinsey estimates AI and automation could increase global GDP growth by up to 3.4% over the next decade.
Most AI-related gains have been captured by the 'Magnificent 7' tech companies.
The 'Magnificent 7' are not drastically overvalued despite recent market cap increases.
Nvidia's 2-year forward PE ratio is 27, compared to Cisco's over 100 during the dot-com bubble.
Arguments against the AI bubble suggest that AI's potential plateau and lack of clear use cases.
Some companies have seen bubble-like increases in market value, such as Alphabet, Amazon, and Microsoft.
Nvidia's current PE ratio is nearly 70, indicating potential overvaluation based on future sales assumptions.
AI is a growing corporate fad, with a rise in AI-related earnings calls and venture capital interest in AI startups.
The video suggests that AI might be a revolutionary technology that takes longer to mature than expected.
Brilliant is a STEM learning platform offering courses in programming, math, data analysis, and AI.
Brilliant teaches through active learning with interactive lessons, promoting understanding of complex topics.
Transcripts
this video is brought to you by
brilliant last week Nvidia released its
earnings report for the first quarter of
2024 once again America's third largest
company massively outperformed
expectations with quarterly Revenue
soaring by 262 per year onye driven by
Massive demand for both its current
generation Hopper gpus and its new
Blackwell chips unsurprisingly these
results sent nvidia's stock soaring and
as of Thursday shares an trading about
20% higher than they were pre- earnings
all in all this means nvidia's stock has
doubled since the beginning of this year
and multiplied tenfold since October
2022 now while nvidia's numbers are
clearly great the dizzying rate at which
its stock has climbed accompanied by
similar claims among other AI adjacent
tech companies has sparked fear that the
AI boom that's pushed the S&P 500 to
unprecedented highs might in fact be a
bit of a bubble so in this video we're
going to have a look at why some people
think the AI boom is really a bubble why
other people disagree and why both sides
could be sort of right at the same
[Music]
time before we start if you haven't
already please consider subscribing and
ringing the bell to stay in the loop and
be notified when we release new videos
now before we get into it the first
thing to say is that this is not
investment advice and more generally
don't take investment advice from
YouTubers so caveats aside let's dive in
is the AI boom actually a bubble well
the honest answer is that no one knows
so we're going to present both sides of
the argument and you can make your mind
up for yourself broadly speaking there
were two types of arguments on either
side there's a technological argument
over whether or not AI is actually the
Revolutionary technology that its
Advocates claim it to be and there's a
more financial argument about whether or
not the stock market is looking bubbly
at the moment so let's start by looking
at the arguments against AI being a
bubble the main arguments made on this
side is a technological one that
generative AI is a genuinely
unprecedented technology that merits the
enormous Investments and valuations that
we've seen over the past couple of years
chat gbt for instance was the fastest
spreading Tech platform in history with
an estimated 100 million monthly users
only 2 months after launch and A's most
bullish Advocates argue that its ability
to perform language-based cognitive
tasks could transform our economy
Goldman Sachs for instance expects AI to
essentially double the rate of US
productivity growth while McKenzie
reckons that Ai and Associated
automation Technologies could increase
Global GDP growth by an upper limit of
3.4% over the coming decade more than
doubling the global GDP growth rate the
most bullish AI Advocates like these
guys expect AI to increase Global GDP
growth by more than 5% which assuming a
baseline of about 3% would imply a
doubling of global GDP in the next 10
years if these numbers are even close to
the mark then the extravagant valuations
we've seen recently are easily Justified
the second argument is that we haven't
seen a proliferation of so-called
companies that you usually see
during bubbles in the bubble for
instance there were a whole load of
companies that were basically just
domain names rushing into IPOs and
achieving eyew watering
valuations similarly in the crypto
bubble a couple of years ago there were
a whole load of clearly meme
coins that had no real value apart from
their ridiculous names rather most of
the air related gains have been captured
by the so-called magnificent 7 so Tesla
meta alphabet Apple Amazon Nvidia and
Microsoft none of which could really be
described as companies the
third argument is that even though the
Magnificent 7 have seen steep rises in
the market cap recently they're not
drastically overvalued this is in part
because some of their recent growth is
in a sense a recovery from the tech draw
down we saw in late 2022 and their price
to earnings ratios haven't changed
drastically in the last couple of years
a useful comparison can be made between
Nvidia today and Cisco during the Doom
bubble during the '90s Cisco was most
focused on building routers and other
internet Hardware in much the same way
that Nvidia today is more about building
the infrastructure behind the tech
rather than the tech itself but at the
peak of the dotom bubble Cisco's 2-year
forward price to earnings ratio that is
the ratio between its current market cap
versus its forecast earnings in 2 years
time was over 100 nvidia's 2-year PE
ratio however is only 27 High by normal
standards but not absurdly so all right
so those are the arguments against AI
being bubble let's take a look at the
other side the first argument is a
technological one that AI isn't all it's
cracked up to B proponents of this
argument might point to ai's apparent
Plateau the lack of obvious use cases Al
like an AI to previous innovations that
just haven't come through but the second
and perhaps more popular argument is
that even if in the aggregate the
Magnificent 7's PE ratio hasn't changed
all that much it's still gone up a bit
and certain companies have seen bubbles
increases for instance the combined
market value of alphabet Amazon and
Microsoft has jumped by $3 trillion
during the AI boom 150 times the2
billion in Revenue they expect to come
from generative AI even Nvidia looks a
bit bubbly its current PE ratio is
nearly 70 more than double the other
Magnificent Seven stocks and while it
justifies this with reference to future
sales this all assumes that Nvidia
continues to to dominate the chips
market for the next couple of years and
that demand for chips holds up which is
possible but not inevitable the final
argument is that even if we haven't seen
that many companies AI is
clearly a bit of a corporate fad at the
moment as evidence by the exponential
rise in earnings call mentioning Ai and
while the Magnificent 7 have captured
most of the AI boom AI startups are
increasingly popular with Venture
Capital despite an otherwise difficult
investment climate
ultimately no one knows and we'll just
have to wait to see if or when the
bubble pops but perhaps it's possible
that both sides are sort of right some
bubbles like the nft bubble a couple of
years ago or the original tulip bubble
in the 1630s are wholly speculative
there's no justifying the price and
people are only buying because they
think they'll be able to sell on to
someone else at a higher price but some
bubbles are based on a genuinely
revolutionary technology it's just that
Market enthusiasm outruns the industry
the fiberoptic bubble in the ' 80s and
the dotom bubble in the '90s for
instance were predicated on the
Revolutionary potential of the internet
which turned out to be correct it's just
that everyone got a bit too excited a
bit too early it's possible that AI will
end up being the same sort of thing a
revolutionary technology that just takes
a bit longer to Blossom than its
Advocates
suggest when making videos like this we
rely on tons of data analysis to
interpret crucial economic data and
understand political decisions but this
kind of analysis isn't just crucial for
our jobs as our world becomes more
driven by Ai and data your job will
likely require more analytical skills
too that's why we've been using
brilliant brilliant is the stem learning
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