WHEN EVERYONE’S A GENIUS, NOBODY IS

(GS), (NVDA), (MSFT), (AAPL), (GOOGL), (AMZN)

I remember sitting in a Goldman Sachs (GS) conference room back in ’87, watching grown men in thousand-dollar suits panic as the Dow dropped 22% in a single day. 

The smartest guys on Wall Street were running around like chickens with their heads cut off, and all I could think was how eerily similar their behavior was to what I’d witnessed during the dot-com madness 12 years later.

Fast forward to today, and I’m watching AI investors exhibit the exact same behavior except this time they’re euphoric instead of panicked, which frankly scares me more. When everyone’s convinced they’ve found the golden goose, that’s usually when it’s about to get cooked.

So let me tell you what the cheerleaders on CNBC won’t: we’re not just in bubble territory anymore, we’re in what I call “nuclear AI bubble” territory. 

NVIDIA’s (NVDA) trading at 75 times earnings while the entire semiconductor industry faces a spending cliff. Meanwhile, the S&P 500 is pricing in 15% annual earnings growth over the next five years, with most of that growth supposedly coming from AI productivity gains.

To put that in perspective, since 1950, the index has averaged just 7% growth over similar periods. That’s not optimism, folks. That’s mathematical impossibility dressed up in an Armani suit.

But what really keeps me up at night isn’t just the valuation metrics, though they’re genuinely terrifying. I’ve seen the internal capital allocation spreadsheets from two major tech companies, and the AI spending projections are absolutely bonkers. 

They’re collectively planning to burn through $400 billion this year on AI infrastructure, betting everything on productivity gains that exist primarily in PowerPoint presentations and McKinsey reports. 

This is like building the world’s most expensive casino and hoping someone invents a way to print money before the mortgage payments start.

Looking at this trajectory, I can say that the concentration risk in AI stocks makes Standard Oil’s monopoly look like a mom-and-pop operation. 

The top five AI darlings now represent 27% of the entire S&P 500, which is more than the top five companies controlled even at the peak of the 1999 tech bubble. 

So when Microsoft (MSFT), Apple (AAPL), NVIDIA, Alphabet (GOOGL), and Amazon (AMZN) all sneeze simultaneously, the entire market catches pneumonia.

Another thing that bothers me is the groupthink. Every portfolio manager, every pension fund, every retail investor is convinced that AI is different this time. 

I’ve heard that song before, and it usually ends with someone crying into their 401k statements.

And the most dangerous part is that everyone’s using the same playbook. Buy the AI leaders, hold through any volatility, and pray that ChatGPT somehow justifies trillion-dollar market caps. 

I made a similar mistake in late 1999 when I finally caved and bought into the internet narrative after watching my careful value picks get demolished. 

Lost 40% in six weeks and learned that when everyone’s rowing in the same direction, you’re probably heading for the waterfall.

The yield curve is flashing warning signals that would have sent my mentor running for the hills. We’ve got the two-year Treasury below the three-month rate – the exact inversion pattern we saw before both the 2000 and 2008 crashes. 

Meanwhile, AI companies are burning cash faster than any of us could keep up, all while promising profitability that’s perpetually “just around the corner.”

So what’s a rational investor to do? 

First, acknowledge that fighting this bubble while it’s inflating is financial suicide. But preparing for the inevitable deflation isn’t. 

Start building cash positions now, not because you’re bearish, but because you’re strategic. When this house of cards finally tumbles, the opportunities will be extraordinary for those with dry powder.

Second, diversify away from the Magnificent Seven tech darlings that everyone assumes are bulletproof. History has a funny way of humbling the seemingly invincible. 

Third, consider assets that perform well during periods of forced deleveraging. Think quality dividend stocks, international markets trading at reasonable valuations, and yes, even some defensive bonds despite their current unpopularity.

The market will eventually remember that trees don’t grow to the sky, but predicting exactly when gravity reasserts itself is a fool’s errand. 

Stay nimble, stay skeptical, and most importantly, stay liquid. Because when this bubble finally pops, you’ll want to be buying, not selling.