The Euphoria stage
It’s likely that we’re in the Euphoria stage, when everyone just throws their money at something without thinking.
The Magnificent Seven big tech firms started losing market value in January 2025, following the launch of DeepSeek R1. However, inspired by the displacement and boom stages of the previous two years, investors returned with renewed zeal.
Evidence of the Euphoria stage is clear:
- AI has received huge investment despite yielding very little return.
- About 95% of businesses that have adopted AI have not seen a return on their investments.
- Nvidia alone constitutes about 8% of the S&P 500’s value, suggesting a significant lack of savvy investment diversification.
It’s possible that investors could ride the bubble out until AI firms produce returns that validate investment levels. However, there are several factors that might burst the bubble at any moment, such as:
- Fragile AI business models could run out of capital, akin to those of Dot-Com companies that caused the 2000 crash.
- Nvidia could suffer a geopolitical shock that undercuts the AI chip manufacturing that supports so much of AI’s infrastructure.
- Another DeepSeek could appear.
- Investors could start looking for safer places to invest than a bubble.
If Nvidia crashes, as Burry’s investments suggest could happen, it’ll be like kicking out the leg of a stilt-walker. As practically the whole US AI infrastructure is built on Nvidia chips, it makes for a fragile situation.
