Transcription
Hi everyone, welcome back to B. It's me, Vo recording remotely from Banggaluru. Sitting in the car again. Sometimes it feels like the world is moving and we're trying to stay still, doesn't it?
So, I'm sorry for the audio quality if it isn't up to spec, but given the time constraints, I didn't want to miss the opportunity to have a conversation with you about what's happening. We're in the last few days of this year and this year has all been about Trump, this trade tariffs and of course the biggest news is AI and where AI is taking us.
There's a lot of talk about bubble and what bubble is and trying to understand if we are in bubble or if this is a bubble or not a bubble and I can understand that as a value investor, retail investor trying to understand this is proving to be more and more difficult as we chug along in this AI world.
First, we must understand what a bubble is. Bubble is just not high prices. Bubble requires irrational behavior, mania and detachment from reality. High valuations alone does not qualify a bubble. So you got to remember that when we talk about a bubble.
So the question remains, are we seeing irrational behavior? Are we seeing mania? Are we seeing detachment from reality? There are people in this camp who will say yes, behavior is irrational. I can understand that. I'm from that old school. And there are people who are more cured to technology, who are in the realm of AI, who are closer to where the fire is and they can tell you there is actual fire and it's just not smoke. So it is hard to quantify if this is actually irrational behavior we are saying because the valuations are that high.
So why does AI look scary? The main reason it looks scary is if you take in case in point like Nvidia briefly touching $5 trillion, then AI startups valued at billions, not millions, billions almost instantly, data centers being funded by rising debt and of course circular deals by suppliers funding customers who immediately buy their hardware. We have spoken extensively about this during this course of this year. So we do acknowledge there's a lot of excess. We cannot dismiss it. But does that quantify a bubble?
Well, excess doesn't always mean insanity when new technology always comes with limited information. This has always been the case in point in history. Of course, we always know in hindsight and we talk about it in hindsight bias. We know about the dotcom and we know about this and that. But there has been other industrial revolution, telephone revolution, communication revolution where this technology slowly has transformed the world. So we as investors are always left guessing the utility and the lack of incomplete data.
So the question remains, is AI the utility of AI really there? All what is being promised by AI is it there? Then of course the lack of data. We have no clear data. A lot of is being hidden behind boxes and black boxes and we can't see clearly and that leads to a lot of speculation. Overestimating in intrinsic value under uncertainty doesn't mean rational. Overestimating unc intrinsic value during uncertainty is quite normal because when you don't have much information and you have to go with what you have, sometimes you end up guessing.
Being wrong is not the same as being delusional. We all make wrong bets. We make wrong investments. Does that mean we are delusional? I don't think so. We've all thought of this company doing well, this management doing well or we thought this product or this time timing is well but we turned out to be wrong. It didn't make us delusional. Mistaking the winners is normal. It's part of capitalism. It is part of investing and that's how the world works.
Investors are right about in the internet. Of course, internet has revolutionized the world. You can't deny that. What they were wrong about was who dominated and me and Anand have been talking repeatedly about this. The problem with AI is not AI, it is the companies. It is hard to know the a Yahoo, the AOL, the Lyos, it mattered then. Remember that moving the.com they were all big companies. Google and Facebook came much later. We all forget this but if you trace the actual history of com these companies were, you know, there much much later. Same thing with AI. The biggest winner may not even not even exist right now. You know the biggest AI company might be yet around the corner which is going to come knocking on our door.
So the real driver defensive spending by the giants. Alphabet, Meta, Apple, Amazon, and Microsoft. They all are defending their cash machines. AI threatens search engine, threatens social media, smartphones, e-commerce. Spending hundreds of billions of dollars is rational insurance by them. And I can understand that Zuckerberg quote matters because it shows fear, not a euphoria. There is a paranoid-driven capital allocation is happening driven by fear by these large capital companies. It is not by retail mania.
So valuation in context if you look meta and alphabet are 25, 30 times earning optimistic, yes, euphoric, detached from cash flow, I would say no. End. What is the uncomfortable truth? The boom can still end badly. I agree on that. Expectations are probably wrong. But dismissing AI as a bubble intellectually makes us very lazy. Investors can't afford to be lazy and real utility is just not price charts. It is understanding and deep diving into this.
Capital structure risk is underplayed. I do agree heavy debt funding these data centers does matter. If cash flows is disappointing, equity holders may survive but debt holders may not. And financial stress can emerge without a bubble popping. Let me say that again. A financial stress can emerge without any bubble popping.
So demand pull is assumed, not proven. So spending in supply-driven tech giants, end user willingness to pay for AI at scale is still very unclear. Monetizing beyond enterprise productivity still remains very thin and circular deals deserves more scrutiny. I do agree supply investor loopholes can temporarily inflate demand as signals and that can be confusing for us as investors and this distorts the truth when real capital is being invested by us. It is not uh something that's easy to understand and with regulatory, you know, hardly there in skeletal form, it is very hard for us to see how this capital allocations happening in this tech world.
So market price, near-term revenue acceleration, all this put together, AI creating value maybe slow, un uneven and backloaded, backloaded like what happened with Facebook and Google during the com. So, you know, what I would like to say is this is not com 2.0 into stupidity. It is something more dangerous and more subtle. Rational people spending enormous sums of money under uncertainty driven by fear that can still end badly, just not the way a bubble does, can still go bust.
So this is what I wanted to share with you today on be rich and uh these are the kind of thoughts which are p left me pondering at the end of the year as I'm reflecting on this year and what we have gone through. I hope this gives you some food for thought as we get into the last few days, the dying embers of 2025 and we about to ignite the fires of 2026. Take care. Do be safe out there. Enjoy yourselves and your rivalries. As I always say, you know, be safe. Thank you for being with me on Beerish today. I know this was short and sweet. I hope you found it informative and entertaining as always. See you again soon. Bye.