A significant decline is the most likely result of the AI boom

Despite significant investments being made in the hopes of generating AI-based wealth, AI is not paying off right now, much like the com boom of the late 1990s

Each of the two businesses, Microsoft and Nvidia, is valued at over £4 trillion. That is more than the combined yearly output of Japan and India. In the words of Warren Buffett, price is what you pay. You receive value. Today's query is: how much will the Magnificent Seven offer investors?

Prices must not deviate from value by an excessive amount, according to our Law of Conservation of Value. Additionally, output determines value. In addition to earning their money back, investors should be able to look to a future income stream. The leading companies weren't as valuable or concentrated as they are now, even during the 1999 .com bubble. Together, Nvidia, Microsoft, Alphabet, Apple, Meta, Tesla, and Amazon account for one-third of the global stock market value of the United States, which is approximately equivalent to China's GDP.

The fact that these stocks are thought to be utilizing AI technology contributes to their allure. Naturally, that is the main argument in the Nvidia case. The others, however, are also making significant investments in AI. Google, Microsoft, Amazon, Tesla, and Meta will invest over half a trillion dollars in AI in 2024 and 2025. It is anticipated that these investments will bring in about £35 billion. For instance, Amazon has spent over £100 billion, which is estimated to result in an additional £5 billion in sales.

The validity and significance of these numbers are unknown to us. We are aware of their lack of impressiveness. AI is failing, much like the .com boom of the late 1990s. The goal of making AI-based wealth is driving massive investments. However, the output doesn't measure up as of yet.

For instance, you can visit ChatGPT and pay for the service. We are among the many who occasionally use it. However, few people, including us, pay for it. This would be acceptable, but it would appear to be a failure because so much money has been invested in the development of AI. According to one estimate by Goldman Sachs, the Magnificent Seven large tech stocks would need to generate an additional £600 billion in revenue annually in order to justify their investment.

How is the AI boom going to end?

More information would result in faster GDP growth rates and less need for capital investment, which was the allure of the .com era.

It was assumed that less expensive, more accurate, knowledge-driven growth would replace expensive trial-and-error expansion. That was not how it transpired. The 21st century saw a general softening of growth rates and productivity. A decrease in capital investment was observed. The decline was not offset by the internet or information revolution; rather, it appears to have been exacerbated. The OECD think tank claims that over the past 50 years, the growth in labor productivity in developed economies has decreased from roughly 2 percent per year in the 1990s to 0 to 8 percent in the most recent ten years.

It's unlikely that AI will change that. An abundance of data was the information revolution's defining curse. It was piled high. It was misunderstood and misrepresented. Sorting and storing it cost money and time. A large portion was untrue or pointless. AI has now entered the picture, making matters worse. The Magnificent Seven and AI are thus left in an antiquated bubble, at least for the time being. Compared to actual sales and profits, stock prices are much higher. Price and value must therefore reconcile in one way or another. A significant surge of profits and expansion could result from a breakthrough. The likelihood of stock prices declining is higher.

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