There Is No Bubble

What do you see when you look at this picture?

I would venture a guess everyone sees a line that goes up. Some might say it's a bubble. It's a mania. For others, a new industrial revolution. The final death rattle of the old, may the new flesh live long.

What I see is an unprecedented deployment of capital - and I don't mean by investors buying equities.

I like to read Ed Zitron's takes on AI as a counterpoint to the frothy consensus. His thesis that the AI companies - aside from Nvidia - haven't really made a profit in any meaningful sense is a good critique. If they keep burning bux it will probably cause a rerate. However, I think this criticism overlooks where the zeitgeist goes from here.

I'm fairly aligned with Lyn Alden's view of "nothing stops this train" both as it relates to Bitcoin but also the wider tailwinds to all asset prices - equities, gold, Labubus.

LLMs are powerful and interesting, but the world-historic compute buildout around GPGPU hardware has massive ramifications and will serve as a kind of techno-capital backstop. I personally don't think AGI is possible with LLMs, but the debate around that has been so beaten to death it's become Soylent. The data center and power infrastructure race is a competition not for "word calculators" but instead for the silicon scaffolding of our future. A national megaproject for utility-scale compute.

I've been kicking myself for only opening a small speculative position in Palantir back in the 2022 doldrums. Firms like Palantir are the blood circulating through these veins. If the proverbial bubble pops, the data centers will still be here. The capital has been deployed. From my perspective, that will be when it gets interesting.

It wouldn't be out of the question for the US government to step in and "bail out" the hyperscalers by paying for compute. Instead of being the lender of last resort, they will be the customer of last resort. The "operating system" of the government can keep growing. For the pessimistic among us: the Panopticon will not stop being built, the bricks will merely be laid more slowly. Excess capacity at firesale prices is a blessing not a curse.

This isn't limited to scary "Big Brother" surveillance, either. Imagine what the insurance industry can do with cheap compute to personalize premiums for better margins. Or what the unloved healthcare industry can do to maintain patient outcomes while minimizing labor costs. Or what researchers can accomplish with cheap GPU access using "AI" that aren't even language models - libraries like Jax give you superpowers.

The way I see it, recession or stagflation slows this process, but I don't expect the bubble to pop in some catastrophic Great Depression way. The economy functions in cycles just like any other ecosystem - we didn't stop building Internet companies after the dotcom bubble popped. If anything, it eliminated uncompetitive species (companies) while opening up ecological niches (markets) for those with the fitness capable of exploiting them.