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The "AI" Sector Is A Bubble, NVDA Going Up, But Junk Stocks Dumping

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The chart above is the most owned “AI” sector ETF and it has been lagging the S&P 500 for over a year.

NVDA has been going up and is probably going to keep going up, but the overall “AI” stock sector has not been. It’s a bubble and most of the stocks in it are doomed.

You’ve seen this before.

You saw dope stocks get hot a few years ago and totally crash.

You also saw hundreds of junk crypto coins get hot two years ago in the Bitcoin mania and crash and never come back.

And now you have seen NVDA rise in this bull cycle and become the meme of the year, and hundreds of other stocks, link themselves to “AI” to join the so called “AI” sector.

Outside NVDA most of the stocks have not been doing well and many of them broke down in May and crashed.

There are three main “AI” ETF’s - BOTZ, ROBO, and AIQ, and they all have pretty similar charts.

The largest, in terms of market cap, is BOTZ, and you can see how it’s relative strength line, comparing it’s price action to that of the S&P 500, has been in decline for the past year. In other words, the overall “AI” stock sector has actually been lagging the stock market all year.

NVDA has helped push the market averages up, but most “AI” stocks have actually not!

But they are not in the S&P 500 or a part of the Nasdaq 100.

Outside NVDA, and a few big tech companies, the “AI” hype is not creating new jobs, new industrial expansion, or even more profits for corporate America.

You were told by gurus such as Cathie Wood, that “AI” would make inflation go away by creating a productivity miracle, but it has not.

According to the WSJ, “AI” has been a net drain on the corporate bottom line, even in the “AI” sector is money pit, going by “a calculation by Silicon Valley venture-capital firm Sequoia that the industry spent $50 billion on chips from Nvidia to train AI in 2023, but brought in only $3 billion in revenue.

It’s even going to cause the margins for Google to decline, even if Google is using it to demolish news websites around the world in order to keep it’s users in a self-contained “AI” generated bubble search ecosystem that they own, from the same WSJ article:

“The costs of running it far exceed the already eye-watering cost of training it. That’s because AI has to think anew every single time something is asked of it, and the resources that AI uses when it generates an answer are far larger than what it takes to, say, return a conventional search result.”

I guess Google has figured that even if it will now make less revenue per visit to its search engine, by hoarding all of the traffic and not sending people to other websites, it will make more money, but how is that increased efficiency in terms of energy/money needed to create results?

In fact, for the most part, robots are not cheaper to build and maintain for companies than human people are to pay. People cost less in most work environments than robots do!

If they didn’t they already would have replaced everyone long ago.

There is also an argument that “AI” is reaching it limits of data collection scraping and so is only going to be able to get as good as it already is in delivering results for people. There just is only so much data to scrape and learn from and garbage in means garbage out.

No matter, what is clear is that many VC people and tech bros have used the “AI” meme to launch new money losing companies, or rebrand their already existing companies, to get the attention of stock market players in a bull market in which inflation is growing, debt is accelerating, so more money enters the financial system, but the momentum in those stock rallies faded months ago.

I looked at the “AI” stocks inside of those “AI” ETF’s and found that almost all of the ones doing the most trading volume, except for NVDA and about five others, have pretty poor looking charts. Some of them even crashed in May.

Take a look at these two for example.

Half of the stocks inside the BOTZ ETF are down year to date and NVDA is the second top gaining stock in it, with some obscure stock that went from nothing to $10 and is now $5 the top gainer.

I would not chase any stock as part of the “AI” meme trade, because the overall sector is already deflating.

That doesn’t mean I think the stock market is in big trouble right now, though, as I wrote yesterday, it looks like it is likely to bounce or rally this month.

But if you want to make money in the markets you don’t do it by throwing money into stocks in sector lagging the stock market averages, you want to do the opposite of that.

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