It was a bit of a bloodbath on Wall Street on Thursday, wasn't it? Crazy stuff. It's been a long time since there's been a red candlestick this big:
Momentum has been tailing off for a while, so this wasn't really unexpected. It's just the first big shockwave. I expect a correction and possibly a crash in the days ahead.
I do NOT, however, believe this is the end of the AI bubble. We'll have a few rocky months, I reckon, and then it'll be full steam ahead once again. I believe that because, while the "circular financing" of some AI companies is indeed a concern, and while valuations for some companies do seem insanely high and unsustainable, those problems don't exist across the board. Google, for example--which I recently bailed out of, by the way, due to capex and search engine uncertainty--has a forward P/E of 18.93. This is actually cheap by Google's historical standards. In fact, all of Google's value metrics are cheaper than they were a year ago.
If not for their huge capex plans and uncertainty about search revenue, I'd still own this stock. On paper, it's not expensive at all.
And other companies in the AI sphere, particularly on the hardware side, have similarly inexpensive valuations. The "irrational exuberance" just isn't there, nor have I seen any evidence that the banks are in trouble in the way they were back in 2008. That's why I think the AI bubble will continue after a correction/crash.
So let's say there's a correction and possibly a crash. Where does it bottom out? Ah, that's the million-dollar question, isn't it? Wouldn't we all like to know... heh.
Let's consult Mr. Fibonacci.
The 38% retracement level is at 7259. The S&P closed at 7353, so there's another 94 points to fall before resistance. If the correction blows through that--and I think it will--then the next level is the 50% at 7080. And if things continue to get bad--which I think is less likely--then we'll proceed to the 62% level at 6902.
When the bubble finally pops for good, by the way, I wouldn't be surprised to see the S&P lose roughly half of its entire value. That's what happened when the dot-com bubble burst. It took about two-and-a-half years to fully unwind.
So those are my thoughts at the moment. Could this be the actual end of the AI bubble right now? Sure. I could easily be wrong about its longevity. But at the moment, I don't think it is.
