Key insights
- The post expresses concern about excessive investment in AI and semiconductors, questioning the market's complacency as reflected in the low VIX. Three scenarios are outlined: stagflation leading to tech multiple compression, an AI bubble burst, or continued AI-driven market growth. The author is concerned about the first two scenarios and is looking for advice on portfolio positioning.
Probably some of the users here have been through 2008, 2011 U.S. Credit Downgrade, COVID, 2022 compression etc. As you saw these crysis coming or unfolding, how did you prepare for it?
The issue I have with the narratives today is just the amount of money spent in semis and the AI euphoria. $700B+ in one year is completely crazy in my opinion. I find it even wilder that VIX is not even that elevated which makes me extremely anxious in the confidence of the market in the AI trade.
I have no idea how it is gonna play out but below are some guesses:
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Stagflation: growth stalls, inflation stays sticky. Big cap tech gets multiple compression and the market demands more from the AI capex story falls apart. AI is still widely adopted but big tech gets back to earth and semis essentially crash.
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AI bubble pops: earnings disappoint, the capex looks insane in hindsight, circular deals become more apparent. S&P looks terrible, SaaS goes back to normal. Pure-play AI names go to zero or close.
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AI goes even higher: productivity gains are real, earnings justify the multiples. Semis are the best trade on earth, Mag 7 looks cheap.
How do you guys position your portfolio? Do you model for all the scenarios above?