Are We in an AI Bubble?

Summary

Nvidia'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

00:00

📈 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.

05:02

🤖 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.

Keywords

💡Nvidia

Nvidia is a leading technology company known for its graphics processing units (GPUs) and artificial intelligence technologies. In the video, it's highlighted as America's third-largest company that has massively outperformed expectations with its earnings report for the first quarter of 2024. The company's revenue soared due to high demand for its Hopper GPUs and new Blackwell chips, which is directly related to the video's theme of discussing the AI boom and its potential impact on the stock market.

💡Earnings Report

An earnings report is a record of a company's financial performance over a specific period, typically a quarter or a year. The script mentions Nvidia's earnings report for Q1 2024, which revealed a significant increase in revenue, indicating strong financial health and contributing to the discussion on whether the surge in AI-related stocks represents a bubble or a justified market response to technological advancements.

💡Stock Market

The stock market is where shares of publicly traded companies are issued and traded. The video discusses how Nvidia's stock price surged by about 20% following its earnings report, and it raises the question of whether the AI boom is causing an unsustainable bubble in the stock market, which is central to the video's exploration of market dynamics and investor sentiment.

💡AI Boom

The term 'AI Boom' refers to a period of rapid growth and investment in artificial intelligence technologies. The video script suggests that this boom might be contributing to unprecedented highs in the S&P 500 index, indicating a potential bubble. The discussion revolves around whether this boom is sustainable or indicative of speculative excess in the market.

💡Generative AI

Generative AI refers to artificial intelligence systems that can generate new content, such as text, images, or audio, that is not simply a replication of existing data. The script mentions Chat GBT, which gained 100 million monthly users in just two months, as an example of generative AI's rapid adoption and its potential to transform the economy, which is a key point in the debate over whether the AI boom is a bubble or a reflection of genuine technological progress.

💡Productivity Growth

Productivity growth measures the increase in output per unit of input over time, often used to gauge economic efficiency. The video cites Goldman Sachs' expectation that AI could double the rate of US productivity growth, illustrating the potential economic impact of AI technologies and contributing to the argument that the AI boom might be more than just a speculative bubble.

💡Global GDP Growth

Global GDP growth refers to the rate at which the total economic output of all countries in the world increases. The script discusses estimates by McKinsey that AI and automation technologies could increase global GDP growth by up to 3.4% over the coming decade, suggesting a significant boost to the global economy and supporting the argument that the AI boom could be justified by substantial economic benefits.

💡Magnificent 7

In the context of the video, the 'Magnificent 7' refers to seven major tech companies, including Tesla, Meta, Alphabet, Apple, Amazon, Nvidia, and Microsoft, which have captured most of the gains from the AI boom. The video argues that these companies are not overvalued and have not caused a proliferation of bubble-like companies, which is part of the counter-argument against the idea that the AI boom is a bubble.

💡Price-to-Earnings Ratio (PE Ratio)

The price-to-earnings ratio (PE ratio) is a valuation ratio calculated by dividing a company's market capitalization by its earnings. The video compares Nvidia's PE ratio to that of Cisco during the dot-com bubble, suggesting that while Nvidia's ratio is high, it is not at bubble levels, which is used to argue against the notion that the current AI boom is a bubble.

💡Corporate Fad

A corporate fad refers to a trend or practice that becomes popular in the business world, often without a solid foundation or long-term viability. The script mentions the rise in AI-related earnings call mentions and the popularity of AI startups with venture capital as evidence of AI being a corporate fad, suggesting that the AI boom might be driven by hype rather than substance.

💡Brilliant

Brilliant is an educational platform that offers courses in STEM fields, including programming and AI. The video features a sponsorship by Brilliant, emphasizing the importance of learning analytical skills in an increasingly AI-driven world. The platform is highlighted as a resource for developing the skills needed to understand and participate in the digital economy, which ties into the video's broader theme of the impact of AI on jobs and the economy.

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

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