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April 22, 2024 | Is The AI Bubble Bursting? Wolf Richter’s WTF Charts

John Rubino is a former Wall Street financial analyst and author or co-author of five books, including The Money Bubble: What to Do Before It Pops and Clean Money: Picking Winners in the Green-Tech Boom. He founded the popular financial website in 2004, sold it in 2022, and now publishes John Rubino’s Substack newsletter.

Artificial intelligence, which a few years ago existed only in science fiction (check out William Gibson’s Neuromancer), has morphed into an epic stock bubble. Nvidia, maker of the leading AI microchips, saw its market cap surge from $200 billion in 2019 to $2 trillion in 2023. I haven’t actually checked, but that might be the fastest episode of paper wealth creation in human history.

So it’s possible that this sector got … ahem … a little ahead of itself. And last week it corrected brutally.

Wolf Richer just posted some charts showing how bad — and widespread — the damage was. Here’s the AI part of his article:

Nvidia [NVDA] plunged 10% today, to $762.00, the worst one-day plunge since March 2020. It’s down 21.8% from its all-time high of $974 on March 25. It became infamous here in this joint on February 24, when we honored it with a WTF Chart of the Year. At that time, Nvidia’s market cap had spiked to nearly $2 trillion, and shares to $788.

We compared it to our WTF-Charts-of-the-Year of Tesla, which a couple of years later made it into our pantheon of Imploded Stocks, though its business continued to boom, and its Model Y became the bestselling model in the world. It just meant that the mania had begun to seep out of the stock.

The minimum qualification for making it into the pantheon: the stock has to drop at least 70% from the all-time high. For NVDA to be inducted into the pantheon, the stock would have to drop to $292, and that’s not hard, that’s where it had been only 10 months ago. It was already a very high-priced stock back then. So today, we’ll honor it with a new and improved WTF chart of the year.

But it gets funnier. I mean, look, you can’t take this stuff seriously.

Super Micro Computer [SMCI] has been deeply tangled up in the AI mania by being one of the many vendors that build servers based on Nvidia’s GPUs. The stock collapsed by 23% today to $713.65 after the company skipped announcing the preliminary results that had been expected ahead of its official earnings results. At these stock prices, anything can trigger a get-the-hell-out moment. It is down by 42% from its all-time high on March 8 ($1,229).

Over the 12 months from up to the all-time high, the stock had gained over 1,100%. This stuff is just hilarious. Kids having a bunch of fun or whatever. It has now given up 40% of that gain. This stuff shows just how silly the markets had gotten.

Arm Holdings [ARM] plunged 16.9% today to $87.19. Over the past three trading days, it has plunged by 28.7%. The chip designer IPOed in September 2023. At the time, SoftBank had owned 90% of it, and it still holds a huge portion of it. In February, ARM had doubled in a matter of days:

Read the rest here.

Maybe It’s Gold’s Turn Now

AI isn’t going away. As Richter notes, Tesla went through a similar correction but continues to dominate the EV market. This story is about the stock market, not the technology.

And, okay, part of my motivation for posting this is schadenfreude. We commodities investors watched from the sidelines as insane amounts of easy money were made almost accidentally by people who didn’t see it coming (because no one foresaw the magnitude of this bubble).

In a just universe, it would be gold’s turn to suddenly enrich its owners. Let’s see how that goes.

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April 22nd, 2024

Posted In: John Rubino Substack

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