It’s Happening Again and Nobody’s Talking About It

I want you to imagine for a moment that you started investing in 1998. The world’s going mad for the internet, new companies are popping up out of nowhere, and every investor is convinced they found the next big thing. So you take all your money and invest it in a few tech stocks just because they have catchy .com names. And for a couple of years, your money keeps going up and up, and everyone thinks you’re a genius, until the year 2000.

The Inevitable Crash

When the bubble burst, the Nasdaq fell nearly 80%, and only 48% of .com companies managed to survive. I watched many of my friends lose millions within a blink of an eye, and even though it was a crash I’d half been expecting, my own investments still took a hit. The crazy part is, the internet was the next big thing, but even then, the overconfidence and hype created one of the biggest bubbles in history.

Is History Rhyming? The AI Boom

So, why am I telling you all this? Well, fast forward to today, and I can’t help but feel that same energy again. But this time, it’s not driven by the internet, it’s AI. People are calling it a once-in-a-lifetime opportunity, and maybe they’re right, or maybe it’s the same story playing out all over again. History doesn’t repeat, but it rhymes, and every generation thinks they found a new era. But as John Templeton said, the four most expensive words in investing are, “this time it’s different.”

But is this time actually different? Well, as over 7 million of you have started investing because of my article, I feel a responsibility to give you my honest take on this situation. So, before you panic, let’s take a step back and look at the three hidden forces behind this potential bubble, why they matter, and what you can do to benefit from all this mayhem.

Force 1: The Magnificent Seven’s Arms Race

Right now, the fate of the entire stock market and your portfolio is being decided by just seven companies. They’re called the Magnificent Seven. These are Amazon, Microsoft, Alphabet, Meta, Apple, Tesla, and Nvidia. Together, they now make up around 36% of the entire S&P 500, and they’re all locked in an arms race to dominate artificial intelligence. So, even if you only own one share of the S&P 500, you’re already betting on these companies. And whether you realize it or not, your future returns depend on how this race plays out, because every dollar these companies invest sends ripples through the whole market, from chip makers to energy companies to your index funds. And when you see how much they’re predicted to pour into AI this year, you’ll understand why.

Let’s go one by one. Tesla plan on spending $5 billion on autonomous driving and xAI, which is Elon Musk’s new AI startup. Apple, $10.7 billion to make Siri smarter. To be honest, it’s probably going to take more than that. Meta, $60 billion on data centers and the metaverse. Google, $75 billion rebuilding the internet with AI. Microsoft, $80 billion funding OpenAI and supercomputers, and Amazon, $100 billion on AWS to own the infrastructure everyone else relies on. That’s a total of $330 billion in one year. To put that into perspective, that’s more than the entire GDP of countries like Finland or Portugal. All that money is going into building the future. Some people are even calling it the Fourth Industrial Revolution.

I get it, this all sounds pretty exciting. However, all of this spending seems to be what’s keeping the economy alive at the moment. And without it, the US might already be in a mild recession. So, the question is, how long can it last? Well, it doesn’t seem to be ending anytime soon. Global AI spending is expected to reach $500 billion by the end of 2026, with spending on power and resources for electricity demand topping $3 trillion annually by 2030. That’s how bad these companies want to win the AI arms race. I mean, I can see why. The International Monetary Fund estimates that about 60% of jobs in the developed world are exposed to AI. This means they could be transformed or replaced by automation in the coming years. So, whoever manages to crack this technology first will be rewarded with a crazy amount of power. Mark Zuckerberg even said if Meta end up mis-spending $200 billion, it’s worth it, because if they move too slowly, they’re out of the competition. But this race isn’t just between companies anymore, it’s between nations. The US and China see AI as the key to global dominance, and they’re both burning through billions to make sure they’re the ones holding the reins. For everyday investors, this could go two different ways. If AI delivers on its promise, the next decade of investing could be just like the internet boom of the 2000s. But if the profits don’t arrive fast enough, the same stocks pumping up your investment portfolio today could drag it down tomorrow. But where is all this money coming from? Well, that brings us on to…

Force 2: The “AI Money Machine”

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It’s being referred to as the AI money machine. It’s the main reason I’m starting to get worried about the state of the AI industry. So, let’s rub some of these arrows out and walk you through how it all operates. Intel, AMD, and Nvidia are the companies that design the chips that power the AI models. OpenAI and xAI and other smaller players are the companies that buy these chips. Then you have Oracle and CoreWeave. These are the data centers who also buy these chips, then lease out the computing power to the AI companies. Think of them like the middlemen. At first glance, nothing seems out of the ordinary, but once you look at how these companies actually work together, the red flags start jumping out.

It started when investors and Microsoft gave OpenAI $58 billion in funding. OpenAI then paid that back to Microsoft to use their data centers. Microsoft then used that money to buy Nvidia chips. Nvidia then invested that back into OpenAI. Doing this allows each company to record that flow as revenue, which, of course, pushes their stock prices up. It’s kind of like if I went out into the woods with a friend and paid him $1,000 to dig a hole. Then he paid me $1,000 to fill it back in. We then both have $1,000 in revenue. Now, if we were valued like OpenAI, which is currently trading at more than 40 times its revenue, that would mean our whole digging and filling business would be worth over $40,000 each.

Obviously, I’m heavily simplifying things here. These companies aren’t just passing around the same money. However, the idea remains the same, and this has only been getting crazier recently with OpenAI announcing a deal worth $300 billion with Oracle. After this, Oracle said they would spend tens of billions on Nvidia chips. Then Nvidia agreed to invest up to $100 billion back into OpenAI. But to unlock that investment, OpenAI has to buy more of their chips.

Nvidia are definitely the real winners here. Their share price is up 1,600% since ChatGPT launched, and they sell their chips to everyone. I’m talking Microsoft, Meta, Google, Amazon, OpenAI, and even Oracle. Then they invest back into the same companies that buy its products. This is like paying your customers to buy your product and could be artificially boosting the demand for their chips. Do you see how messy this is all getting?

Let me try and simplify it. Nvidia sells the shovels, Oracle provides the land, OpenAI digs the quarries, and they’re all helping each other to lure people into the mines, but nobody struck gold yet.

The Profit Problem: Valuation vs. Revenue

I mean, OpenAI is currently valued at $500 billion, but it’s only making roughly $12 billion in revenue. It’s losing money every month. Now, that’s the main problem I see with all of this. AI services are just not making enough money. So, will these AI companies ever make the kind of profit needed to justify their stock prices? Well, it is possible, as they do still have some huge levers they can pull. I mean, each week over 700 million people are using ChatGPT. That’s a huge amount of attention. And even more importantly, an enormous amount of data about all of us. Imagine when Sam Altman turns on ads and allows companies to use ChatGPT to recommend their products directly inside our conversations. It could be like nothing we’ve ever seen before. In addition to this, OpenAI has surprisingly announced that it will start to allow erotica in its chats for verified adults, which of course is a huge industry. Not that I know anything about that. On top of that, these AI companies are building systems that are aimed to undercut the human workforce. They’re betting that once corporations become dependent on AI, they’ll have no choice but to keep paying, no matter the cost. And that’s when the AI companies could hike prices sky-high and finally cash in. So, there’s no doubt these AI companies are valuable, but much of that value still depends on one thing: the belief that progress will keep accelerating. And that leads us on to…

Force 3: The “Data Wall”

AI has been improving at a breakneck speed for the past couple of years. I mean, we’ve gone from an AI video that looks like this to this. It’s funny that Will Smith eating spaghetti has become one of the ways we now judge AI’s improvement. The stock market is relying heavily on the rapid rate of improvement to continue. However, we’re not far off hitting something called the data wall. For years, AI has been devouring every scrap of public data available. By 2027, it’s expected to have consumed nearly all human-generated online content. It’s like climbing a ladder in a game of snakes and ladders. Everyone assumes the ladders will keep going, but we’re running out of data to climb. So, we might have to start moving square to square instead.

I mean, just think how long the data sets that we’re feeding AI have taken to build. Centuries. No wonder progress seems to have been so rapid, as we’ve been feeding it books and research data going all the way back to the dinosaurs, and I’m not talking about me. If AI companies can’t find a way to scale beyond the data wall, we could see progress slow down, expectations collapse, and the bubble many investors are banking on finally bursting. But is beating the data wall actually possible? Potentially. Think about it. Humans don’t have to worry about this data limit. That’s because we don’t just learn from being fed data, we learn from interacting with the world. I mean, if AI tried to make this video, it couldn’t. It hasn’t lived my life, had my conversations, or made my investing mistakes. My perspective comes from my experience, which is something AI can’t simulate. So, in my opinion, scaling past the data wall is possible, but it isn’t just a question of more data, it’s a question of different data. But look, I’m not a scientist. So, let’s get back to investing and the stock market. That brings me on to…

Is This Time Really Different?

So, I started this article by comparing what’s happening now to the .com bubble of the late 1990s. However, is it actually the same? No, not entirely. The main difference is that these AI companies have real utility and a clear path to profits. How big those profits will end up being remains to be seen. However, it’s a much better situation than the .com bubble, where companies were getting their crazy valuations from fancy names alone. So, does that mean it’s not a bubble? Well, honestly, I still think it is. The signs are all there: overvaluation, faking revenue, geopolitical mania, and scaling limits. However, there’s no way of telling what stage we’re in. This could be the start of a decade of crazy investment, or closer to the end than we realize.

How to Invest in This Market

So, what’s the best thing to do with your money? Well, I’m not a financial advisor. However, these are the things I’d be focusing on if I were you.

Firstly, continuing to invest. If we’re at the start of the bubble, then the prices we’re seeing right now could seem like bargains in a couple of years’ time. That’s why it’s so important to set up an automatic investment that leaves your account every month and goes into a broad, low-cost index fund. I did this during the .com bubble, and although my investments took a hit when the bubble burst, I don’t regret a thing, as over time, the market bounced back, as historically, it always has. The real secret is not to panic when your portfolio goes down. As long as you’re investing in an index fund that tracks the overall stock market, then continuing to invest through a crash could be the best thing you ever do. That’s how I ended up making millions from the .com bubble bursting. But in order to do this, you need to make sure you’re not in debt or overleveraging yourself. This is exactly why my friends lost millions while I was able to keep investing. The next thing I’d do is use the link in the description to sign up for free early access of my new wealth-building platform so you can ask me questions directly. I’m only joking, but seriously, you should do it.

Secondly, focus on increasing your income. Your income is the fuel you’re using to grow your wealth. So, if you can increase it by getting a promotion or starting a side hustle, then that’s going to supercharge your returns, especially if you can do this while the stock market’s falling, because you’ll be picking up some bargains.

Thirdly, focus on diversification. Putting all your money into one type of investment is a recipe for disaster. The key to surviving market bubbles is diversification. This means spreading your money across different types of assets. My portfolio includes stocks, bonds, precious metals like gold, real estate, and even cryptocurrency. It’s also worth considering dividend-paying stocks, as they actually perform well during downturns because they generate passive income even when prices are low. Just remember, this bubble bursting won’t be the end of the world. If you understand situations like this, then you won’t be the one panicking, and you’ll be the one taking advantage of the opportunities while everyone else is running for the exits.