Dot.com Bubble Vs Neural Network Bubble

TL;DR - There will be some winners, but most of these valuations are repeats of the same mistakes investors made during the dot com bubble.

Neural Networks are the most significant development in global computing since the internet. The current Shiller P/E ratio is a fair enough indicator for that sign.

How does this change valuations? To understand that we have to reflect back on the dot com bubble. Companies like Amazon, Cisco, Yahoo, and the infamous Pets.com defined this bubble.

Amazon - Winner Winner Chicken Dinner

Cisco - Infrastructure play that lost momentum, still very solid company but highly overvalued at its peak. Nvidia bears think of 90s Cisco when looking at Nvidia.

Yahoo - Company that peaked early and has gradually declined into a steady plateau. They lost the search race to Google. A good example why betting on a strong #2 is not a good idea.

Pets.com - This company was truly a domain name and a dream that ultimately amounted to a bankruptcy.

Now let’s stop reflecting and examine the current market.

OpenAI/Anthropic/Google - I like the odds of one of these being the next “Amazon” for the neural network era. If I had to guess, I’d probably guess Google because they print cash and can invest more Capex into their R&D than the other two. But if OpenAI or Anthropic can capture enough market share in the consumer and business markets respectively they have a fighting chance to win. OpenAI faces a competitive consumer market with consumer price elasticity being a valid concern. Anthropic has price elasticity with providing Claude Enterprise to businesses but they are still building market share and may be too late to the game.

Broadcom/Intel/AMD- I think Nvidia has won this race and will be the preferred GPU manufacturer for neural networks. Is that worth 5 trillion today? Honestly I don’t know that answer. But Broadcom/Intel/AMD are like Cisco in the sense that they will likely lose all their momentum and give up their gains when this bubble pops. They all are solid companies, just overvalued given their future potential.

OpenAI/Anthropic - One of these companies will likely end up like Yahoo. They will be hyped for post IPO, and be a strong #2 in the space for a while, only to succumb to a gradual decline into a plateau. Hard to say which will win given they are currently winning different markets. Its too early to say whether the path of the consumer vs commercial market makes more sense for an early stage neural network company.

Allbirds - This is modern day meme stocks like that is an “AI Data Center” company and a dream, much like Pets.com

I’m not even factoring Chinese neural network companies into this equation either. It’s totally possible one of those companies wins a vital neural networking race.

There will be a massive economic evolution in the consumer and business markets, with neural networks being able to automate labor, change how entertainment works, change how searching for information works, and provide greater and greater personal support for daily tasks.

There will be winners in this market that will be handsomely rewarded. But for every winner, there’s 30 lame ducks waiting around the corner because the market is out over their skis with most of these neural network influenced valuations.