r/valueinvesting
Markets have been very wrong before, why would they be right now?
Author warns market overextrapolates temporary AI demand for memory suppliers like Micron, predicting a drop when investments slow.
- Temporary demand increases are being wrongly extrapolated into future demand.
- Data center investments will eventually slow down, causing share prices to drop.
- Companies may overbuild data centers or cancel order reservations.
There's a long list of companies that saw huge valuation increases in 2020-2021 and then fell greatly in the following years.
For example, Paypal's share price almost tripled during the pandemic to $300 but is now down to $42.
The market saw revenue growing fast and extrapolated it beyond reason. It underestimated future competition and overestimated future demand.
Now the market is likely doing a similar thing with equipment suppliers like Sandisk and Micron. Temporary demand increases are wrongly being extrapolated into future demand increases. When the data center investments slows down, there will be a drop in share prices.
Some companies will build more data centers than they ultimately need like xAI who is renting theirs out. Other big companies will decide to withdraw order reservations and slow investment.
Markets are wrong because things change over time.
Micron is still way undervalued if you assume it's no longer cyclical. The current valuation is based on some likelihood of it being one or the other or somewhere in-between. It can be cyclical still but the low of the cycle is now higher.
Jeez guys, everybody is "wrong", that's why investing needs patience.
Markets are always wrong: share prices overshoot or undershoot.
Inflation erodes debt, which rewards speculation.
Markets are never “wrong”. The price is the price.
Investors are wrong.
this is such bubble talk dude lol
thanks for making me laugh
all of you
You clearly have no clue what you are talking about. Coders and mathematicians? Wtf
I have some of my rationale here:
Demands don’t grow in definitely.
That's not how supply and demand works. Demand means willingness to pay. We can tell from AI being free and low price relative to business expenditure that the demand isn't there.
It was right about barely any companies during covid.
What do you even mean by being right then? Every company is going to experience ups and downs due to internal or external circumstances or go bust eventually. If you wait long enough, the market will likely be wrong about something as situations evolve, but that's due to you delaying or shifting your time frame/goalpost.
You'e going off on a pedantic tangent.
Here's a shorter version for you then:
It's not the market's job to be right or wrong. It's the investor's job to understand the market regardless of why and what other people say.
value investors have been so wrong recently
You are right. Most of the Ai companies are overvalued.