It's Deja Vu All Over Again

Is the Mania for All Things AI the New Dot-Com?

There is an old saying that “history may not repeat itself, but it sure does rhyme.” When it comes to the history of financial manias, this expression carries a lot of weight. Whether it be the Tulip Mania of the 1630s or the South Sea Bubble of 1720, history is full of examples where investors threw caution (and rationale) to the wind in hopes of being a part of the "next big thing". You know, that investment everyone is talking about and you're afraid you are going to miss out on.

Sound familiar?

If you follow business news and the financial markets, it’s hard not to hear a story almost every day about the rapid growth and popularity of anything related to artificial intelligence (AI). The idea of getting rich due to AI has captivated investors and technologists alike. Companies developing and utilizing AI have seen their valuations skyrocket, sparking comparisons to the dot-com craze of the late 1990s. While the underlying technologies differ, there are undeniable parallels in how market enthusiasm is driving valuations, raising concerns about a potential bubble.

Echoes of the Past: Hype and Speculation

To help understand how the past can help us understand the present, let’s go back in time to an era of wonder and magic. It was the late 1990s when grunge music ruled the airwaves and shows like Seinfeld and Friends dominated broadcast television. Along the way, this thing called the internet came about where you could use a dial-up modem connected to your desktop computer to access something called the World Wide Web. I have to be honest; it was an exciting time.

This point in economic and financial history, called the “dot-com era,” was defined by unbridled optimism for the internet's potential. Companies with even the flimsiest connection to the web saw their stocks soar, often lacking clear business models or tangible revenue streams. Want proof? Do a little search for a company called Pets.com, and you will see what I’m talking about.

Fast forward to now, and a similar dynamic is at play with AI. Companies with "AI" slapped onto their names, regardless of their actual involvement in the technology, have witnessed significant stock price increases. This suggests that investor sentiment, rather than concrete fundamentals, is driving valuations to potentially unsustainable levels. Back during the early stages of the dot-com era, this played out in a similar way with any new stock prospectus that included the term “internet” or “.com” in it.

The Curse of the "Next Big Thing"

Both eras were fueled by the seductive narrative of the "next big thing." The dot-com bubble promised a digital revolution, while AI is touted as the key to unlocking a new era of automation and efficiency. This narrative, while exciting, can blind investors to the inherent risks involved. In the dot-com bubble, many companies overpromised and underdelivered, leading to a brutal market correction when reality set in. The question remains whether AI companies can live up to the lofty expectations currently priced into their stocks.

The Challenge of Measuring Value

A significant difficulty in both the AI and the dot-com eras lies in accurately valuing companies. Traditional valuation metrics like price-to-earnings ratios become less meaningful when dealing with nascent technologies with unproven long-term profitability. Investors are essentially betting on the future potential of AI, which inherently involves a degree of speculation. This lack of clear valuation benchmarks can exacerbate market bubbles, as seen in the dot-com crash.

A key thing to remember is that all those big-money investors (e.g., private equity firms, endowment funds, pension funds, etc.) betting on AI eventually want to see results. Specifically, they want to see their investments generate some hefty returns. If they don’t, they will stop the funding, cut their losses, and move on. Many of these firms can take this hit – can you?

Is this Time Truly Different?

While the parallels are striking, there are also some key differences between the AI boom and the dot-com bubble. Unlike many dot-com companies, many AI firms are established players with existing revenue streams. Firms like Microsoft, Google, and Meta (the firm formerly known as Facebook) have been around for a while, generate a lot of revenue, and sit on piles of cash. Pretty sure these firms will be around for a while.

Additionally, AI technology is demonstrably powerful, already impacting various industries from manufacturing to finance. This suggests a stronger foundation for the current market enthusiasm compared to the pure speculation that fueled the dot-com bubble. As someone who makes his money working in the insurance industry, I can tell you that this sector of the economy is prime for disruption. However, for this potential to be realized, responsible investment is crucial.

Recommendations for Responsible AI Investing

So, if you're dead set on getting a piece of the AI action, and you have some capital that you are prepared to lose if things go south (remember Pets.com), here are some key recommendations for investors navigating the AI market:

• Focus on Fundamentals: Don't be swayed by hype alone. Look for companies with proven track records, clear business models, and demonstrably valuable AI applications. Analyze their research and development capabilities, existing partnerships, and the potential impact of their AI solutions.
• Prioritize Established Players: While exciting startups exist, consider established companies with a strong financial footing and a history of innovation. These companies are better positioned to weather potential market corrections and deliver long-term value.
• Embrace Diversification: Don't put all your eggs in one basket. Spread your investments across various AI sub-sectors, such as computer vision, natural language processing, and robotics. This will help mitigate your risk and provide exposure to a broader range of AI-driven opportunities.
• Seek Expert Guidance: Consider consulting with financial advisors with expertise in the AI landscape. They can help you identify promising companies, assess valuations, and develop a well-rounded investment strategy.

There is no doubt that the AI boom presents an exciting opportunity for technological advancement and economic growth. However, as my 11th-grade U.S. History teacher Ms. Greenblat used to drum into our heads, “those who don’t study their history are doomed to repeat it.”

As such, it is crucial to learn from the excesses of the dot-com bubble. By prioritizing responsible investment strategies and focusing on companies with demonstrably valuable AI applications, investors can participate in the AI revolution while mitigating risk. Remember, the future of AI is bright, but responsible investment is key to unlocking its true potential.

Et, al....

Review: A Quiet Place: Day One

Got some good news and some bad news for you.

The bad news first.

The big, scary monsters from the "A Quiet Place" films are back. This time the film focuses on when these creatures with amazing hearing descend upon our planet from out of the sky. Literally, they drop out of the sky and chaos erupts!

In this film, the focus shifts from the Abbott family to a new cast of characters navigating the early days of the alien invasion. Specifically, the story is set in Manhattan (shocker, I know) where the heroine Samira (played by Lupita Nyong who was fantastic) tries to survive this disaster. Along the way, she meets up with Eric (wonderfully played by Joseph Quinn) as they try to escape the city.

And the Verdict is…

Now, time for the good news...

This movie was amazing!

While I really liked the first two movies, I wasn't really sure what to expect from this chapter in the story. While it lacks the raw terror of the originals, it delivers a suspenseful and emotional story. While we really don't learn anything more about these space invaders (like how I worked that in here?), the film's strength lies in its human drama, exploring themes of hope, resilience, and the power of connection even in the face of unimaginable horror.

Definitely worth seeing in a big theater with comfy seats and a great sound system...but be quiet!

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