Everyone on Wall Street was asking the same question yesterday.
Is this “The Big One?”
The Big One, in this case, is a crash of AI stocks. Like the dot-com bubble popping in 2000. (You could add the Great Recession of 2008, or the COVID panic of 2020, but let’s stick to tech.”
It’s not. How do I know?
Two reasons.
First, everyone expects it. If everyone expects a crash, they are positioned against it. They own bonds, or foreign stocks, or just cash. On the Street it’s called “dry powder.” In a real bubble everyone joins in on the fun. The bubble pops because there are no buyers left.
The second reason is that there has been no “precipitating event.” We have no idea, yet, of the top value someone will pay for OpenAI, the AOL of our time. The day there’s a public transaction at OpenAI, either a sale, or an IPO, or a “down round,” in which investors buy equity based on a lower valuation than a previous funding round, it’s game over.
Nothing like that has happened yet. Instead, we’ve had hints from OpenAI that they’re open to being subsidized by the Administration. We have people “worried” about the Cloud Czars’ debt (which isn’t that bad…yet). This isn’t the precipitating event only because the Administration seems open to it.
That talk was loud enough to cause what we’ve seen this week. The NASDAQ Index opened for trade November 21 down just 8% from its all-time high. A “correction,” considered a routine event, is defined as occurring when it’s down 10%. (You need to be down 20% to call something a “bear market.”)
Instead of a crash, what we’ve seen is an orderly retreat from a market high.
Exceptions To the Rule
Some stocks have fallen harder than others. Oracle is down 23% in the last month. This brings it to levels not seen since…September? Investors doubt whether some of the revenue contracts it’s announced (as with OpenAI) are real. Meta is down 20%, because analysts find its LLaMa models to be crap. Cloudflare is down 25% in less than two weeks because of their own stupidity.
Besides, there are still winners. Alphabet is up 15% in the last month. Apple, which isn’t even playing this AI Great Game, is up 3.5%. Nvidia trades where it did a month ago. That wouldn’t happen in a panic. Everything would crash.
You’re still going to see headlines like Global Stocks in Meltdown. A headline like $2.4 trillion lost certainly sounds scary. But those are headlines, clickbait. Life is going on. Nvidia earnings were super-duper. Netflix and Comcast have joined Paramount in offering to buy Warner Brothers Discovery.
There were plenty of pullbacks like this during the 1990s. Most notably there was the Asian Financial Crisis of 1997. These things happen.
When it is “The Big One” you’ll know. Because everyone will be surprised. If you’re an investor, remember this. Just as you don’t have a gain until you sell out, you don’t have a loss, either.
