August 30, 2024 | Read Online

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"In the short run, the market is a voting machine but in the long run, it is a weighing machine."

― Benjamin Graham

Friday naturally intelligent charts

The top of investing bubbles, so obvious in hindsight, are notoriously impossible to time — there's no fundamental metric that will help you know when it's time to get out of the market.

This is why investing advice abounds with astrology-type warning signs, like taxi-cab drivers offering stock tips or The Economist featuring a stock-market bull on its cover.

By that logic, this week featured perhaps the strongest possible signal that US equity markets are in bubble territory: Nvidia watch parties.

The Wall Street Journal reported that New York City bars were unusually full Wednesday afternoon as NVIDIA enthusiasts eagerly awaited the company's Q2 earnings report.

OK, fine. It may have been just one bar in Midtown — but how many Economist covers or investment-advising taxi cab drivers do you need to see to start getting nervous about the stock market?

If that's too unscientific for you, how about this one: OpenAI was reported this week to be raising money at a valuation in excess of $100 billion.

That's roughly $500 of valuation for each and every user of ChatGPT, few of whom pay anything to use the service and nearly all of whom regularly switch among about ten other nearly identical services.

If that is still too anecdotal for you, we can also just look at the price action in NVIDIA's shares.

NVDA finished the week nearly 10% lower despite the company reporting revenue and earnings up an astounding 122% and 168%, respectively.

I take that as evidence that when people are gathering in bars to watch your earnings reports, living up to the hype will be nigh impossible — in the short-run, at least.

In the long run, the stock market remains a weighing machine, not a voting one, so earnings will eventually be what matters.

There was evidence from this week of busy corporate reporting that the earnings that AI will produce may still be under hyped.

You may never pay to use AI, but lots of companies already do, including many that you might not expect.

As reported by Sherwood News, Bath & Body Works has a "generative AI fragrance finder," Taco Bell is using "drive-thru voice AI technology," Kraft-Heinz uses AI "to deliver delicious taste and texture," Chipotle uses "co-intelligence" to execute "every single bowl correctly," and Starbucks is using AI for "strategic site selection."

It's not exactly the personal robots we were promised, but it's evidence that the vast bets being made on AI are already paying off.

That, at least, is what Nvidia CEO Jensen Huang will have you believe — in the NVIDIA earnings call, he dismissed fears over "AI capex ROI" by saying that NVIDIA customers are making returns on their investments "right away."

Anecdotal evidence suggests he's not just "talking his book."

Consider Amazon's CEO, who noted this week that, over the past six months, applying AI to its process for upgrading Java code has saved Amazon 4,500 years of developer time.

4,500 years!

Unlike, say, newsletter-writer time, developer-time is expensive, so that must represent an immense return on Amazon's investment in AI.

And that's just the return from upgrading Java code.

The return from the ultimate AI prize (winning the race to artificial general intelligence) is exponentially higher — so much so that Google co-founder Larry Page has reportedly said he's "willing to go bankrupt rather than lose this race."

I don't know how many NVIDIA chips you'd have to buy to bankrupt a $2 trillion company and I hope we never find out, but the fact that Google is willing to risk it suggests that it may be too early to short the AI bubble — watch parties or not.

Let's check the charts.

The market is not only AI:

Gold, Berkshire Hathaway, and the Dow Jones Industrial Index each made new all-time highs this week. Berkshire became the first non-tech company to hit a $1 trillion market capitalization.

NVIDIA got there a lot faster:

Nvidia's market cap rose by $3 trillion in less than two years following the launch of ChatGPT.

But Berkshire has been doing it for much longer:

Over the past 40 years, Berkshire is up 54,000%, far outpacing the Nasdaq Composite's pedestrian-by-comparison performance of 7,000%.

The one weird trick to getting rich quick:

Work for NVIDIA, where the average employee received $73,623 in stock-based compensation in 2020 when the stock traded at $13 per share — that's now worth nearly $700,000.

The rest of us are mostly doing OK, too:

Measured in terms of real purchasing power (ie, adjusted for inflation), US workers are making on average $2,000 more per person than they did in 2021.

It might be getting harder:

The WSJ reported this week that salaries in many industries are lower this year than they were last. So, if you've got a job, consider keeping it.

If not, consider moving to the Dakotas:

Here's a chart of unemployment by US state, ranging from near zero in North and South Dakota to near 6% in Nevada and Illinois.

Or get two jobs:

A record-high 464,000 Americans report having two full-time jobs.

If they're doing it right, both of those jobs would be with NVIDIA.

Have a great weekend, naturally intelligent readers.

— Byron Gilliam

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4:21 PM • Aug 30, 2024

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