1 00:00:00,049 --> 00:00:03,450 Everyone's talking about the AI bubble. 54% of global fund 2 00:00:03,470 --> 00:00:06,991 managers think we're in one. The International Monetary Fund is warning about 3 00:00:07,031 --> 00:00:10,592 it. And Michael Burry, the guy who shorted the housing market in 2008, just 4 00:00:10,652 --> 00:00:14,334 shorted a bunch of AI companies in the last few weeks. And yet everyone's 5 00:00:14,354 --> 00:00:17,695 still piling money into this space like it's a sure thing. But here's 6 00:00:17,755 --> 00:00:20,976 what nobody's telling you. The AI bubble isn't coming. It's 7 00:00:21,036 --> 00:00:24,357 already here. And the only question left is how bad 8 00:00:24,397 --> 00:00:28,319 the crash is going to be and whether you're going to protect yourself before 9 00:00:28,359 --> 00:00:31,681 it happens. And if you're an Australian investor, if 10 00:00:31,721 --> 00:00:34,803 you have superannuation in international funds, you're more exposed to 11 00:00:34,843 --> 00:00:38,004 this than you think. And in this video, I'm going 12 00:00:38,024 --> 00:00:41,306 to show you exactly why the AI bubble is 13 00:00:41,486 --> 00:00:44,968 unsustainable. I'm going to show you the circular deals that are propping up 14 00:00:45,008 --> 00:00:48,229 the entire industry. And most importantly, I'm going to show you 15 00:00:48,650 --> 00:00:52,011 what this means for you as an Australian investor. I'm Lloyd James 16 00:00:52,071 --> 00:00:55,253 Ross, seven-figure investor and entrepreneur, and I've helped thousands of 17 00:00:55,293 --> 00:00:58,595 business owners and professionals turn financial stress into 18 00:00:58,635 --> 00:01:02,178 success. If you're stuck in old money habits, overwhelmed by investing, 19 00:01:02,338 --> 00:01:05,920 or unsure where to start, this is for you. I'll give you the mindset 20 00:01:06,140 --> 00:01:09,562 and strategies to take control, grow your wealth, and achieve 21 00:01:09,642 --> 00:01:13,504 financial freedom. It's time to make your money work for you. Let's 22 00:01:13,524 --> 00:01:16,754 start with this, the scale of the bubble. We'll start with 23 00:01:16,774 --> 00:01:20,137 the numbers. Because once you see the scale of what's actually happening, you'll 24 00:01:20,177 --> 00:01:23,419 understand why it can't last. So OpenAI, the company 25 00:01:23,459 --> 00:01:27,522 behind ChatGPT, was recently valued at about $500 billion. 26 00:01:27,562 --> 00:01:30,744 People are saying when it lists it's gonna be a trillion, but $500 billion. Now for 27 00:01:30,784 --> 00:01:33,906 context, that's more than Coca-Cola, more than McDonald's, more 28 00:01:33,946 --> 00:01:37,348 than even Pfizer. And how much revenue does it currently produce? 29 00:01:37,388 --> 00:01:41,704 Well, it's generating about $10 billion a year. How 30 00:01:41,724 --> 00:01:44,865 much are they losing? More than that. They're burning through like eight 31 00:01:44,885 --> 00:01:48,546 and a half billion dollars in losses, just in losses annually. So 32 00:01:48,707 --> 00:01:52,128 we have a company valued at 500 billion that's losing money. 33 00:01:52,848 --> 00:01:55,989 And not just losing a little bit of money, it's losing billions of 34 00:01:56,029 --> 00:01:59,711 dollars every single year. But don't worry, it 35 00:01:59,751 --> 00:02:03,974 gets worse. OpenAI has committed to 1.5 trillion 36 00:02:04,475 --> 00:02:09,299 in AI deals. That's trillion with a T. They've signed $500 billion 37 00:02:09,319 --> 00:02:12,702 deals with Project Stargate. That's to build all the data centers in the US. A 38 00:02:13,242 --> 00:02:16,585 $300 billion deal with Oracle, specifically to buy all the compute power. And 39 00:02:16,625 --> 00:02:19,687 another $500 billion with NVIDIA to buy the 40 00:02:19,727 --> 00:02:23,779 chips. And then another $300 billion with AMD. That's 41 00:02:24,280 --> 00:02:27,863 1.5 trillion in commitments for a company that generates 10 billion in revenue. So 42 00:02:27,903 --> 00:02:30,946 let me put that in perspective. If open AI used a 43 00:02:31,346 --> 00:02:34,449 hundred percent of its revenue, every single dollar it 44 00:02:34,489 --> 00:02:39,434 makes to pay for the deals, it would take 150 years to 45 00:02:39,474 --> 00:02:45,074 fulfill those commitments. It's 46 00:02:45,114 --> 00:02:49,219 not a business model, it's almost like a Ponzi scheme, right? And 47 00:02:49,339 --> 00:02:52,522 OpenAI is not alone in this. McKinsey did a 48 00:02:52,542 --> 00:02:56,426 recent study and they estimate that the AI industry will 49 00:02:56,446 --> 00:03:00,150 need to spend, check this out, will need to spend $7 trillion in 50 00:03:00,230 --> 00:03:04,374 capital expenditures over the next five years just to meet the demand. $7 trillion! 51 00:03:05,188 --> 00:03:08,391 So to put that in context, America's total capital expenditure across all 52 00:03:08,431 --> 00:03:12,035 industries in 2024, last year, was 8.3 trillion. So 53 00:03:12,055 --> 00:03:15,418 the AI industry, just one industry, is planning to spend nearly as 54 00:03:15,498 --> 00:03:18,641 much as the entire US economy spends on 55 00:03:18,701 --> 00:03:21,784 everything. And here's the thing, most of 56 00:03:21,804 --> 00:03:26,028 these companies aren't making money. So 57 00:03:26,228 --> 00:03:30,129 there's a circular monetary problem happening here. You 58 00:03:30,149 --> 00:03:33,770 might be thinking, okay, well, aren't these people smart who 59 00:03:33,810 --> 00:03:37,552 are running these companies? They wouldn't be investing in 60 00:03:37,592 --> 00:03:40,873 this stuff if it didn't work, right? And I understand that, but here's where 61 00:03:40,893 --> 00:03:44,454 the circular money problem arises. You've seen 62 00:03:44,494 --> 00:03:48,075 this chart floating around probably, it's floating around the internet, and 63 00:03:48,095 --> 00:03:51,937 it shows the financial relationships between all the major AI companies. And 64 00:03:51,957 --> 00:03:55,318 when you look at it, you realize something very disturbing. They're all just paying 65 00:03:55,338 --> 00:03:59,486 each other. So here's how it works. NVIDIA 66 00:03:59,866 --> 00:04:03,451 invests $100 billion in open AI because NVIDIA is 67 00:04:04,252 --> 00:04:07,597 one of the largest chip providers, right? In fact, it's the largest 68 00:04:07,657 --> 00:04:11,482 and it's a $4 trillion company, a $5 trillion company now. And 69 00:04:11,582 --> 00:04:15,882 it's the largest company in the world. And here's the thing, it's 70 00:04:15,982 --> 00:04:19,186 got what's called vendor financing. And vendor financing is 71 00:04:19,206 --> 00:04:22,631 where they actually allow their biggest customers, and OpenAI is one of their largest customers, 72 00:04:22,972 --> 00:04:26,276 $100 billion, to actually buy the chips off 73 00:04:26,316 --> 00:04:30,479 them with borrowed money from them. So 74 00:04:30,859 --> 00:04:34,122 this happened in the dot-com bubble too, and it's now 75 00:04:34,162 --> 00:04:37,644 starting to happen again. So in return to that, OpenAI 76 00:04:37,684 --> 00:04:41,026 agrees to buy NVIDIA's chips. And so they're kind of incestuous, they're 77 00:04:41,066 --> 00:04:44,469 in bed together, right? And so NVIDIA also 78 00:04:44,509 --> 00:04:48,051 invests in the CoreWeave, which is an AI data center, and they agreed to backstop 79 00:04:48,131 --> 00:04:51,693 all their services if they can't find customers. So CoreWeave then 80 00:04:51,733 --> 00:04:55,296 sells computing power to OpenAI. And AMD gives 81 00:04:55,356 --> 00:04:58,678 OpenAI warrants for shares in return for OpenAI's 82 00:05:00,659 --> 00:05:03,840 You know commitment to buying the AMD chips so that 83 00:05:03,880 --> 00:05:07,022 announcement alone sends the AM stock ticker higher Which 84 00:05:07,102 --> 00:05:10,243 then helps pay open AI for the deal that makes sense because they're 85 00:05:10,343 --> 00:05:13,444 using warrants So open AI announces a 86 00:05:13,624 --> 00:05:16,986 300 billion dollar deal with Oracle for data 87 00:05:17,006 --> 00:05:20,447 center capacity Oracle turns around and 88 00:05:20,487 --> 00:05:23,728 buys chips from media Who's invested in 89 00:05:23,928 --> 00:05:27,350 open AI see the problem? It's a circle. It's 90 00:05:27,390 --> 00:05:30,571 circular and NVIDIA is investing in 91 00:05:30,891 --> 00:05:34,433 its own customers so they can then buy NVIDIA chips. And 92 00:05:34,453 --> 00:05:37,814 then NVIDIA is reporting those chips as sales as revenue, even though 93 00:05:37,834 --> 00:05:40,916 they're effectively funding the purchase themselves. And 94 00:05:40,956 --> 00:05:44,261 that is the vendor financing conundrum. And 95 00:05:44,301 --> 00:05:47,723 it's exactly what happened right at the end of the dot-com bubble incidentally. 96 00:05:48,184 --> 00:05:51,466 So the company that was doing that was say 97 00:05:51,506 --> 00:05:54,908 Nortel for example. They started lending money to their customers so they could buy their products. 98 00:05:55,248 --> 00:05:58,410 And it made their revenue look great. It made their 99 00:05:58,510 --> 00:06:02,393 profits look great. And then the whole thing collapsed. Because 100 00:06:02,413 --> 00:06:05,795 here's the truth. If you're investing in your customers to give them the cash 101 00:06:05,815 --> 00:06:09,558 they need to buy your stuff, you're not actually making any profit. You're 102 00:06:09,578 --> 00:06:12,665 just moving money in a circle. It's 103 00:06:12,705 --> 00:06:16,007 a loop. And when the music stops, and 104 00:06:16,067 --> 00:06:19,489 it will, when investors stop putting money into the space, the 105 00:06:19,529 --> 00:06:23,231 whole thing falls apart. And then there's the demand 106 00:06:23,251 --> 00:06:26,653 problem. And let's just say I'm 107 00:06:26,793 --> 00:06:30,435 wrong. Let's say these circular deals aren't even a problem. Let's 108 00:06:30,455 --> 00:06:34,597 say these companies can actually deliver on what they're promising. There's 109 00:06:34,637 --> 00:06:41,178 still one massive issue, demand. Specifically, 110 00:06:41,218 --> 00:06:44,480 when Bain and company did a study, they estimated that AI will need 111 00:06:44,700 --> 00:06:48,162 like $2 trillion in annual revenue by 2030 to be profitable. 112 00:06:48,282 --> 00:06:51,564 Think about that. In four years, they need 2 trillion in 113 00:06:51,604 --> 00:06:56,067 annual revenue to be profitable, 2 trillion. That's more than the 2024 revenue 114 00:06:56,167 --> 00:06:59,849 of Microsoft, Meta, Alphabet, Amazon, Apple, 115 00:07:00,369 --> 00:07:03,871 and NVIDIA all combined. That's five times more 116 00:07:03,911 --> 00:07:07,193 than the entire software as a service market. And 117 00:07:07,213 --> 00:07:10,577 there's no path to that kind of revenue. Yeah, so 80% of 118 00:07:10,638 --> 00:07:14,239 companies are using AI in some sort of capacity, right? So ChatGPT broke 119 00:07:14,259 --> 00:07:17,701 the records and it's the fastest growing app ever. OpenAI 120 00:07:17,721 --> 00:07:20,982 now has like 800 million active users, but only 121 00:07:21,863 --> 00:07:25,824 6% of those users are actually paying for the service. And 61% of 122 00:07:25,844 --> 00:07:29,186 the companies using AI say it hasn't had any real 123 00:07:29,266 --> 00:07:32,407 impact on their earnings. So we have hundreds of millions of 124 00:07:32,447 --> 00:07:35,829 people using AI for free effectively. And the companies that 125 00:07:35,849 --> 00:07:39,277 are paying for it aren't seeing a return on the investment. And Citigroup 126 00:07:39,317 --> 00:07:43,301 estimates that AI revenue will reach like $780 billion 127 00:07:43,361 --> 00:07:46,523 by 2030. It's very impressive growth. That's like 128 00:07:47,224 --> 00:07:51,187 80% a year. It's incredible, right? It's an industrial bubble. But 129 00:07:51,227 --> 00:07:54,709 it's still less than half of what Bain said that they needed for 130 00:07:54,729 --> 00:07:58,272 the industry just to break even. That's 131 00:07:58,352 --> 00:08:02,095 assuming everything goes perfectly. That's assuming 132 00:08:02,235 --> 00:08:06,098 AI companies deliver on their promises. That's assuming that demand keeps growing 133 00:08:06,138 --> 00:08:10,379 at the same pace. But what if it doesn't? What 134 00:08:10,459 --> 00:08:13,841 if we're in this Metaverse 2.0? Remember when 135 00:08:13,881 --> 00:08:17,744 Zuck started spending all the cash flow from Meta on the Metaverse? And 136 00:08:17,764 --> 00:08:21,187 remember everyone said it was the future, et cetera? 137 00:08:21,327 --> 00:08:24,629 I can't remember that. And Meta stock just collapsed because it 138 00:08:24,809 --> 00:08:27,911 was just wasted money. Because where is the Metaverse now? It's 139 00:08:27,952 --> 00:08:32,378 like, remember when people were buying land in the Metaverse? What 140 00:08:32,398 --> 00:08:36,186 happened to them? Anyway, AI is 141 00:08:36,246 --> 00:08:39,613 certainly more promising than the metaverse, but the same principle applies. 142 00:08:40,765 --> 00:08:44,166 Just because a technology is exciting doesn't mean 143 00:08:44,226 --> 00:08:47,487 it's profitable, doesn't mean it's a good investment. We've seen this 144 00:08:47,527 --> 00:08:50,688 before with railroads in the 1800s, 145 00:08:51,448 --> 00:08:55,390 bubble, industrial bubble. We saw it then with cars, industrial 146 00:08:55,430 --> 00:08:59,051 bubble. We saw it then with the internet, industrial 147 00:08:59,091 --> 00:09:03,392 bubble. If you look at these industrial bubbles over the course of history, The 148 00:09:04,813 --> 00:09:07,934 railroads, there was like tons of railroad companies. And 149 00:09:07,974 --> 00:09:11,215 now there's only like a handful. There's only like a handful. There's only like eight big 150 00:09:11,515 --> 00:09:15,176 class one railroads in the Western markets, 151 00:09:15,436 --> 00:09:19,038 really. And so you think of all those railroads, there's only a handful. Then 152 00:09:19,058 --> 00:09:23,339 you look at cars. In fact, in America, there was 200 car manufacturers 153 00:09:23,479 --> 00:09:27,181 in the United States at the beginning of the car boom. Now 154 00:09:27,221 --> 00:09:30,562 there's like Ford and GM, two, there's two, two. 155 00:09:32,315 --> 00:09:36,376 The internet, remember all the internet companies weren't making money? They're gone, gone. 156 00:09:36,796 --> 00:09:40,377 Pets.com, toys.com, you know, all gone. There's 157 00:09:40,417 --> 00:09:44,939 only a handful, Google, Amazon, Microsoft. Like 158 00:09:45,239 --> 00:09:48,740 there's just a handful now. So if you're looking at this as an industrial bubble, 159 00:09:48,840 --> 00:09:52,001 of course, there's only gonna be a handful of AI companies left. So there's gonna 160 00:09:52,021 --> 00:09:55,402 be a huge fallout, right? So here's the thing with, 161 00:09:56,222 --> 00:10:00,430 if you're listening from Australia, cause that's where I'm based right now. Here's 162 00:10:00,690 --> 00:10:03,935 what nobody's talking about here in our country. What does it mean for us? What 163 00:10:03,956 --> 00:10:07,622 does it mean for people who are, you know, it's in America, right? Open AI doesn't 164 00:10:07,642 --> 00:10:11,108 really matter. So what happens to Australian investors when the bubble pops? Let 165 00:10:11,128 --> 00:10:14,446 me. Well, it's not good, particularly lately, 166 00:10:14,506 --> 00:10:17,750 because a lot of superannuation funds are gonna start putting a lot of money into 167 00:10:17,790 --> 00:10:21,094 international shares. But according to the ASX, the 168 00:10:21,114 --> 00:10:24,679 Australian investors have poured billions into AI as well. NVIDIA, Microsoft, AMD, 169 00:10:24,719 --> 00:10:27,923 these are some of the most heavily traded stocks, even on Australian exchanges, because we 170 00:10:27,963 --> 00:10:31,988 can also, on our ASX, have index 171 00:10:32,028 --> 00:10:35,911 funds like, you know, from Vanguard and 172 00:10:35,931 --> 00:10:39,234 BlackRock, they're listed on our exchange. So you can actually 173 00:10:39,354 --> 00:10:42,736 have huge exposure to these companies via those types of ETFs and 174 00:10:42,756 --> 00:10:46,119 funds, and that is actually happening. So it's not just retail investors, it's 175 00:10:46,159 --> 00:10:49,481 Australian super funds, it's your retirement savings, it's all that stuff. 176 00:10:49,521 --> 00:10:53,945 They're heavily exposed to AI. If you look at some ETFs, That 177 00:10:54,386 --> 00:10:57,970 a lot of Aussies are exposed to like I would say 30 to 178 00:10:58,010 --> 00:11:01,234 40 percent of the holdings are all exposed to AI It's crazy, you know 179 00:11:02,135 --> 00:11:06,415 it's wild and so most 180 00:11:06,475 --> 00:11:09,797 people are going to be exposed to this crash, right? Or 181 00:11:09,817 --> 00:11:13,399 this adjustment in the bubble. Just quickly, if you're ready to take control of your finances but 182 00:11:13,439 --> 00:11:16,661 feel stuck on where to start, I have a solution. My 183 00:11:16,721 --> 00:11:19,883 book, Money Bias Happiness, simplifies investing and 184 00:11:19,943 --> 00:11:23,505 wealth building with practical steps to help you achieve financial peace. 185 00:11:24,045 --> 00:11:27,367 Get your copy via the link in the show notes and let's get your money working for 186 00:11:27,407 --> 00:11:31,189 you. Now back to the episode. So when it pops, it 187 00:11:31,209 --> 00:11:34,723 will definitely hit retirement savings. But there's an 188 00:11:34,763 --> 00:11:38,426 even bigger risk if you're in Australia too, because you've got currency risk. So most of these investments 189 00:11:38,446 --> 00:11:42,049 are in US dollars. So when the bubble pops, you're not just losing money on the stocks, you 190 00:11:42,169 --> 00:11:46,292 may also have some sort of currency conversion too. So 191 00:11:46,332 --> 00:11:50,115 yeah, just be careful of that. Because when the US market crashes, typically the 192 00:11:50,235 --> 00:11:53,958 Aussie dollar strengthens. And so that 193 00:11:55,059 --> 00:11:59,383 amplifies your losses as well. With 194 00:11:59,423 --> 00:12:02,825 any hope, people run to the US dollar and that doesn't happen. So you could 195 00:12:02,845 --> 00:12:06,207 potentially get hit twice, right? One with the stock price, and 196 00:12:06,227 --> 00:12:09,369 then one on the currency. And there's the economic impact of 197 00:12:09,409 --> 00:12:12,711 that. And people will often say, well, how does that impact our economy? Well, remember when 198 00:12:12,771 --> 00:12:17,373 housing collapsed in America? Boom, a couple of years later, we got smashed. Because 199 00:12:17,574 --> 00:12:21,075 the old saying goes, when America catches a cold, when America sneezes, Australia 200 00:12:21,095 --> 00:12:24,317 catches a cold. You've probably heard that before. So Australia's economy is 201 00:12:24,357 --> 00:12:27,659 definitely dependent on resources, right? We've got iron ore, coal, natural gas. 202 00:12:27,699 --> 00:12:31,300 These are our biggest exports. And guess who buys them? China. And 203 00:12:31,320 --> 00:12:34,981 guess who else buys them? USA. And they 204 00:12:35,061 --> 00:12:38,202 buy them for manufacturing, infrastructure, technology, and development. And so when the 205 00:12:38,302 --> 00:12:41,843 AI bubble pops, the global thirst for these commodities will 206 00:12:41,903 --> 00:12:45,024 actually dry up too. Now, I don't think that's going to happen in the 207 00:12:45,264 --> 00:12:48,464 short term. But long term, at some point, there will be 208 00:12:48,504 --> 00:12:51,865 an adjustment to these revenue projections, the amount of capital being 209 00:12:51,905 --> 00:12:55,246 put into these things, and the ROI that's not coming back. and 210 00:12:55,306 --> 00:12:58,448 that's gonna definitely have a knock-on impact to us as 211 00:12:58,488 --> 00:13:01,670 a country, to our resource sector, et cetera, and 212 00:13:01,690 --> 00:13:04,932 then it'll start to then have a knock-on effect in jobs, right? So it 213 00:13:04,972 --> 00:13:08,314 means the Australian economy then will start to contract as well. So it wouldn't surprise me 214 00:13:08,334 --> 00:13:11,716 to see a recession after a 215 00:13:11,776 --> 00:13:15,018 global AI bubble pop. So everybody's pretty much exposed to 216 00:13:15,038 --> 00:13:18,420 the risk, okay? So it's not just gonna hurt tech investors, I think it's gonna hurt everyone. 217 00:13:18,961 --> 00:13:22,983 Now, to what extent, we don't know, but there's definitely concentration 218 00:13:23,063 --> 00:13:26,416 risk because Everyone's talking about 219 00:13:26,496 --> 00:13:30,178 AI. It's just like the thing. Yeah And I 220 00:13:30,278 --> 00:13:34,640 think it's like 35 to there about companies account for like 90 Yeah, 221 00:13:34,660 --> 00:13:38,261 almost a hundred percent of the AI token spending In 222 00:13:38,281 --> 00:13:41,842 fact, there's two companies that are actually accounting 223 00:13:41,862 --> 00:13:45,584 for almost 50% of it, right? NVIDIA's chips, of course, and 224 00:13:45,624 --> 00:13:49,705 then other companies involved in the AI itself. They 225 00:13:49,745 --> 00:13:53,307 account for like, I think it's 36% of the S&P 500's growth. 226 00:13:53,707 --> 00:13:57,488 This is wild, okay? I would say the most concentrated 227 00:13:57,689 --> 00:14:01,530 S&P 500 in recent memory. So when you're buying 228 00:14:01,550 --> 00:14:05,011 the S&P 500 as an example, you're buying 500 companies, but by the way, most 229 00:14:05,031 --> 00:14:08,470 of the gains are from The AI companies 230 00:14:08,510 --> 00:14:11,672 which account for 40% of the fund. Okay, so it's just something to 231 00:14:12,332 --> 00:14:15,754 understand, right? So if one of these companies fails, then it sends a bit of a shockwave 232 00:14:15,794 --> 00:14:19,336 through the entire market, right? And then OpenAI is basically 233 00:14:19,356 --> 00:14:23,039 at the center of it all. Because OpenAI's deal announcements 234 00:14:23,099 --> 00:14:26,522 alone, right? They've added hundreds of 235 00:14:26,542 --> 00:14:30,066 billions of dollars to the market values of Broadcom and Video and AMD. So 236 00:14:30,106 --> 00:14:33,710 if OpenAI pulls back, if they can't deliver on their promises, 237 00:14:34,571 --> 00:14:38,376 and right now Alphabet is cranking. It's 238 00:14:38,396 --> 00:14:41,880 taken so much market share from OpenAI. Look at the chart. It's dominating 239 00:14:41,900 --> 00:14:45,924 because Google has a distribution across its powerful 240 00:14:45,984 --> 00:14:49,266 businesses to implement AI faster than OpenAI. OpenAI is pure. 241 00:14:49,566 --> 00:14:53,107 It's very much its own business, and it can get absolutely crushed by people like Alphabet, 242 00:14:53,127 --> 00:14:56,529 who have just got these wide modes and distribution channels that they don't access. 243 00:14:57,049 --> 00:15:00,251 In fact, right now, Google is one of the only ones. In fact, 244 00:15:00,311 --> 00:15:03,852 Google and Alibaba are the only full-tech stack AI, which means this. They 245 00:15:03,892 --> 00:15:07,073 own the chips, they own the data centers, and 246 00:15:07,114 --> 00:15:10,603 they own the distribution. the actual AI models. So 247 00:15:10,703 --> 00:15:14,326 they're the only full stack. And in fact, too, they've got contracts 248 00:15:14,667 --> 00:15:18,431 on nuclear power. So if you go right upstream, nuclear 249 00:15:18,451 --> 00:15:21,974 power contracts for getting power, then you've got the 250 00:15:22,034 --> 00:15:25,338 actual chips themselves, then you've got the data centers, 251 00:15:25,618 --> 00:15:28,801 then you've got the models. And that's a full stack AI for 252 00:15:28,901 --> 00:15:32,902 vertically integrated business model. Those who've got a fully vertically 253 00:15:32,962 --> 00:15:36,963 integrated business model not only control the model themselves, they 254 00:15:36,983 --> 00:15:40,444 make better margins, but they also can squeeze 255 00:15:40,604 --> 00:15:44,305 out these other ones at a higher cost. It's very much like the oil industry in 256 00:15:44,325 --> 00:15:47,546 that sense. You get companies like that 257 00:15:47,586 --> 00:15:50,947 versus an open AI and they're already crushing open AI. This is what's happening 258 00:15:50,967 --> 00:15:54,068 in real time. What's happening too is in 259 00:15:54,508 --> 00:15:58,149 the prices out there, the P ratios, the price 260 00:15:58,169 --> 00:16:01,471 that you're paying for these companies in relation to their earnings, they're getting 261 00:16:01,511 --> 00:16:04,713 quite high, which means there's no room for error. So 262 00:16:04,753 --> 00:16:07,874 there's no room for disappointing results. If they don't stack up, it doesn't happen, they don't 263 00:16:07,894 --> 00:16:11,116 deliver, there's gonna be massive price adjustments. You're gonna see a huge, there could be 264 00:16:11,156 --> 00:16:15,137 a big bear market, 20, 30% collapse in the stock market for sure, as 265 00:16:15,178 --> 00:16:18,974 these prices start to adjust based on the earnings that they can actually deliver on. So 266 00:16:18,994 --> 00:16:22,375 you look at the peer ratio of the S&P 500 now, it's actually at 30 times earnings, 267 00:16:22,395 --> 00:16:26,636 which historically is very high, very high. It's 268 00:16:26,696 --> 00:16:30,238 not quite as high as the dot-com bubble. In the dot-com bubble, it was 46 times 269 00:16:30,258 --> 00:16:33,699 earnings. Flipping very high, right? So we're not quite at dot-com 270 00:16:33,719 --> 00:16:37,060 bubble levels yet, but we're getting close. And here's the difference. During 271 00:16:37,080 --> 00:16:40,501 the dot-com bubble, 36% of the tech companies were actually losing 272 00:16:40,541 --> 00:16:44,743 money. They're just like URLs, it was wild. I 273 00:16:45,203 --> 00:16:48,385 was only 17, I still remember. Today, it's only 18%, right? 274 00:16:48,405 --> 00:16:51,667 So on the surface, things look a lot better. The financials are definitely stronger. The 275 00:16:51,727 --> 00:16:55,149 companies look more stable. They are more stable, but that doesn't account for the private companies like 276 00:16:55,269 --> 00:16:58,551 OpenAI and Anthropic and so forth that are completely unprofitable. They're burning through 277 00:16:59,071 --> 00:17:02,453 billions of dollars in cash. And it doesn't account for the circular money problem with 278 00:17:02,473 --> 00:17:05,775 the vendor financing that's happening with Nvidia, or the demand problem, or 279 00:17:05,815 --> 00:17:09,658 the infrastructure bottlenecks like power, right? Which is a huge constraint. So 280 00:17:10,299 --> 00:17:13,586 why this bubble, this industrial bubble, which it is, is 281 00:17:13,626 --> 00:17:19,115 different from the dot-com bubble, which is also an industrial bubble from the internet. It 282 00:17:19,155 --> 00:17:22,496 is different. And I know you're probably thinking, Lloyd, why are you being so negative, right? 283 00:17:22,936 --> 00:17:26,577 Why are you bullish on AI? I love AI, it's great, but there's definitely a bubble. The 284 00:17:26,597 --> 00:17:30,159 internet was a bubble too, and it's changed the world, it's amazing. So 285 00:17:30,759 --> 00:17:35,761 financial bubbles are really bad for people. Like the 2008 housing 286 00:17:35,781 --> 00:17:38,922 bubble was a financial bubble. It was FOMO by the 287 00:17:38,962 --> 00:17:42,203 consumer of buying things worth way more than what it costs, and it 288 00:17:42,223 --> 00:17:45,565 was FOMO. That was very bad because they were selling bonds, anyway, long 289 00:17:45,605 --> 00:17:49,446 story. Not ideal. Financial bubbles suck. 1929 was 290 00:17:49,466 --> 00:17:53,048 a financial bubble, and so was the 2008 financial crash. So financial bubbles, 291 00:17:53,168 --> 00:17:56,370 extremely systemically bad for us. They can cause 292 00:17:56,390 --> 00:17:59,651 depressions. However, industrial bubbles 293 00:17:59,671 --> 00:18:03,973 are really good for us as consumers. It advances our lifestyle 294 00:18:04,453 --> 00:18:07,875 massively. But it's not so good for investors if they own pieces 295 00:18:07,895 --> 00:18:11,236 of these companies that aren't making the money they say they are, right? That's the issue. 296 00:18:13,211 --> 00:18:16,412 So, the internet changed the world, railroads changed the world, cars changed the world, 297 00:18:16,532 --> 00:18:20,554 AI is changing the world. But it also, the internet, dot-com 298 00:18:20,574 --> 00:18:24,036 bubble also led to an 80% collapse of the NASDAQ 299 00:18:26,557 --> 00:18:30,959 If you look at the NASDAQ in 2000, 1999, 2000, 80% collapse. 300 00:18:31,099 --> 00:18:35,041 In fact, it collapsed over a couple of years. But then it, listen to this, it took 301 00:18:35,101 --> 00:18:39,068 14 years to recover. Be 302 00:18:39,088 --> 00:18:42,471 aware of that. It can happen again. So thousands of .com startups obviously 303 00:18:42,491 --> 00:18:45,794 went broke. Investors lost trillions. It took a long time 304 00:18:45,834 --> 00:18:49,037 to recover. But again, a few companies did 305 00:18:49,077 --> 00:18:52,200 survive. So yeah, AI is 306 00:18:52,240 --> 00:18:55,363 changing the world, but it doesn't mean you're necessarily going to make money from 307 00:18:55,443 --> 00:18:59,266 it. And this is why Warren Buffett doesn't invest heavily into fast-changing industries, 308 00:18:59,687 --> 00:19:02,929 because it's not how you make money. It's how you definitely have a better life. 309 00:19:03,590 --> 00:19:07,434 Okay, so there's a few differences between the dot-com bubble and the AI bubble back 310 00:19:07,474 --> 00:19:10,677 then interest rates were rising The Federal Reserve was actually tightening monetary policy right 311 00:19:10,717 --> 00:19:14,121 now. They're actually gonna bet to the opposite They're gonna probably 312 00:19:14,181 --> 00:19:17,925 drop rates because inflation's come right down. Okay, so there's a huge difference. We're 313 00:19:17,945 --> 00:19:21,170 gonna see rate cuts which means the bubble's got more room to 314 00:19:21,210 --> 00:19:24,551 run. If rates are cut, oh my God, 315 00:19:24,571 --> 00:19:27,952 we're gonna see this thing flip and boom, and I think rates are gonna get cut, because Trump right 316 00:19:27,992 --> 00:19:31,233 now is like, he's hammering the Fed chairman to 317 00:19:31,434 --> 00:19:35,175 start cutting rates, right? So the timing's a lot different. During 318 00:19:35,195 --> 00:19:38,376 the dot-com bubble, Alan Greenspan was the Federal Reserve Chair 319 00:19:38,396 --> 00:19:41,437 at the time, right? And he said, oh, there's a 320 00:19:41,477 --> 00:19:44,698 lot of irrational exuberance, which there was in 1996, I think he said 321 00:19:44,718 --> 00:19:47,939 that. And then four years later, bang, the bubble pops. So it takes a 322 00:19:47,999 --> 00:19:51,180 while, right? So even if we are in a massive bubble, it 323 00:19:51,200 --> 00:19:54,554 could take a few years. And especially if they drop rates, it definitely will. And 324 00:19:54,574 --> 00:19:57,695 it could also pop tomorrow. I mean, we just don't really know. But we do 325 00:19:57,735 --> 00:20:01,437 know for certain that right now there's way too much capital flowing 326 00:20:01,477 --> 00:20:04,598 into AI based on the expected returns of 327 00:20:04,618 --> 00:20:07,860 that capital. Now, if that happens, it's very capital intensive and 328 00:20:07,880 --> 00:20:11,642 very return light, which means at some point it'll 329 00:20:11,682 --> 00:20:16,408 adjust. And when it adjusts, the market will go through some sort of you 330 00:20:16,448 --> 00:20:19,589 know, bear market, okay? So what do you do right now? 331 00:20:19,789 --> 00:20:23,111 What do you do? First, if you're invested in AI 332 00:20:23,171 --> 00:20:26,532 stocks specifically, you need to take a hard look at your portfolio. I'm 333 00:20:26,572 --> 00:20:29,673 not saying sell everything, I'm not saying don't buy AI stocks, but I'm 334 00:20:29,693 --> 00:20:33,835 just saying you need to understand your own risks. So if you own NVIDIA, AMD, 335 00:20:33,915 --> 00:20:37,837 Microsoft, one of these companies that are not only heavily exposed to AI, but 336 00:20:37,957 --> 00:20:42,218 also at a very high price based on the capital expenditure, Then 337 00:20:42,238 --> 00:20:45,839 you've got to be very careful. Now, there are companies out there like Google, 338 00:20:45,859 --> 00:20:51,241 for example, got multiple verticals. It's got YouTube, cloud, 339 00:20:51,481 --> 00:20:56,202 it's a cloud leader. It's got its own TPUs now. It's 340 00:20:57,983 --> 00:21:02,064 a vast empire. People often joke, Google is the internet. And 341 00:21:02,084 --> 00:21:06,385 so you've got these companies that are earning tons of profit, got a hundred billion in cash. There 342 00:21:06,425 --> 00:21:09,826 are certainly opportunities out there where it makes a lot of sense, where companies 343 00:21:09,867 --> 00:21:14,157 are really going to they're 344 00:21:14,177 --> 00:21:17,760 gonna become even more powerful with the likes of AI. So 345 00:21:18,620 --> 00:21:21,762 there are some great opportunities out there, as long as 346 00:21:21,782 --> 00:21:25,285 the valuations are reasonable. And that just means are you getting, 347 00:21:25,305 --> 00:21:28,847 are they gonna be able to generate 348 00:21:28,967 --> 00:21:32,501 profits based on their spending? That's all that matters, okay? So 349 00:21:32,781 --> 00:21:36,043 if they can't, they'll fall hard, right? Now 350 00:21:36,083 --> 00:21:39,265 the other part that you can do is make sure you're diverse. So don't put all 351 00:21:39,285 --> 00:21:42,887 your eggs in one AI basket, okay? You don't wanna chase the hype. I 352 00:21:42,907 --> 00:21:46,049 see some portfolios in X and they're just all AI stocks. I'm like, these guys are gonna 353 00:21:46,069 --> 00:21:49,931 get killed, right? So make sure you're diversified across sectors. Perhaps 354 00:21:49,971 --> 00:21:53,446 you'll be in like, for example, I'm 355 00:21:53,506 --> 00:21:57,168 in railroad, I'm in oil, I'm in healthcare, 356 00:21:57,668 --> 00:22:00,750 I'm in certainly technology, but I'm in China tech, so it's 357 00:22:00,770 --> 00:22:04,091 a little bit different to US tech, and I'm slightly a little bit in US tech, and 358 00:22:04,111 --> 00:22:07,412 then a little bit of cash and some other things. So you have to be diversified. That's very 359 00:22:07,432 --> 00:22:10,994 important, right? You don't need to just be all stacked in AI because you 360 00:22:11,014 --> 00:22:16,497 have no sector diversification. Everybody knows to be a little bit diversified. And 361 00:22:16,517 --> 00:22:19,700 then understanding that owning shares in companies that 362 00:22:19,740 --> 00:22:22,883 survive the bubbles, that's a more astute way to 363 00:22:23,583 --> 00:22:26,726 invest long term, right? And that's where I'm putting my money because the 364 00:22:26,766 --> 00:22:30,070 companies that I'm investing in, I know that even through 365 00:22:30,090 --> 00:22:33,253 a bubble burst, they'll come out stronger. And that's what 366 00:22:33,273 --> 00:22:36,696 you want to do. You want to invest in companies that will do well either 367 00:22:36,716 --> 00:22:39,958 which way, okay? And you've got to be very mindful of price. You 368 00:22:39,978 --> 00:22:43,179 don't want to time the market. That's not a good, sensible strategy. What 369 00:22:43,219 --> 00:22:46,780 I've done lately is I've got this thing called the 100-year portfolio 370 00:22:46,800 --> 00:22:50,021 that I'm building, my own personal portfolio. And I've renamed it that 371 00:22:50,081 --> 00:22:53,322 because I'm like, am I buying companies that have not 372 00:22:53,382 --> 00:22:56,823 only withstood the last 100 years, that they can do it again, in 373 00:22:56,903 --> 00:23:00,604 products and areas that are impossible to compete with? And 374 00:23:00,644 --> 00:23:03,945 it's just changed my entire approach And I'm just so 375 00:23:04,005 --> 00:23:08,487 much more excited about that because I don't have to worry about timing, disruption, 376 00:23:08,627 --> 00:23:11,748 anything like that. And some companies in the AI race, they do tick a 377 00:23:11,768 --> 00:23:15,430 lot of those boxes. So you don't wanna make emotional, hypey 378 00:23:15,470 --> 00:23:18,651 decisions around AI, okay? Just protect yourself, diversify, focus on 379 00:23:18,671 --> 00:23:22,284 the fundamentals, okay? If you don't know what fundamentals are, go 380 00:23:22,324 --> 00:23:25,425 get my book, Money Buys Happiness, on the second page. There's a little cool little course that you 381 00:23:25,445 --> 00:23:28,787 can do which will explain all that stuff, right? Moneybuyshappinessbook.com, go 382 00:23:28,807 --> 00:23:32,048 check it out. Because the worst thing you can do is not 383 00:23:32,088 --> 00:23:36,230 be educated and do nothing. That's the worst thing, right? Is not 384 00:23:36,250 --> 00:23:39,812 understand what's happening, right? So I'm not here to tell you that it's all gonna 385 00:23:39,892 --> 00:23:43,094 be bad and it's gonna, you know, it's a huge fallout and we're gonna go through a massive recession. I'm not saying 386 00:23:43,114 --> 00:23:46,375 that. I'm saying that AI is changing the world. I'm excited about it. 387 00:23:46,835 --> 00:23:50,596 Some insane things are coming, but it 388 00:23:50,756 --> 00:23:55,777 may hurt you as an investor. When 389 00:23:55,837 --> 00:23:59,038 Mark Zuckerberg gets on the news and he tells Trump, we're 390 00:23:59,058 --> 00:24:03,659 going to throw 500 billion, they just throw these numbers around like nothing. they 391 00:24:03,679 --> 00:24:07,401 have to generate a return from the capital. Otherwise, there's going to be capital destruction. 392 00:24:07,801 --> 00:24:11,322 And that's what's going to lead to the AI bubble popping, right? Especially if 393 00:24:11,362 --> 00:24:14,763 this circular money thing continues, which is why Michael Burry's put 394 00:24:14,803 --> 00:24:17,985 a short bet on these companies, because he knows this too. It's just a matter of 395 00:24:18,025 --> 00:24:21,146 time, right? So when it pops, a lot of people are going to lose a lot 396 00:24:21,166 --> 00:24:25,128 of money. Don't be one of them. Protect your wealth, diversify, 397 00:24:25,509 --> 00:24:28,671 focus on fundamentals. And if you found this video helpful, make 398 00:24:28,711 --> 00:24:32,133 sure you hit the subscribe button because I'm going to keep tracking this 399 00:24:32,173 --> 00:24:36,637 story. And when the bubble pops, you're going to want to know what to do afterwards. 400 00:24:36,657 --> 00:24:39,879 There's going to be a fallout. Like, what do I do now? We're going to be doing lots of episodes on 401 00:24:39,899 --> 00:24:43,253 this, right? So thanks for watching. Stay safe out there in the AI bubble 402 00:24:43,293 --> 00:24:46,515 world, and I'll see you in the next episode. Thanks for listening to Money Grows 403 00:24:46,576 --> 00:24:49,818 on Trees. If you enjoyed the episode, leave a five-star review on Apple 404 00:24:49,838 --> 00:24:52,941 Podcasts and Spotify and subscribe to us on 405 00:24:52,981 --> 00:24:56,404 YouTube so you never miss an episode. And if you're serious about building wealth, 406 00:24:56,724 --> 00:24:59,867 make sure to check out the links in the show notes and follow me on all 407 00:24:59,967 --> 00:25:03,350 social media platforms at LloydJamesRoss for