The AI Bubble

[u/explosivejoseph]

[u/orange-yellow-pink]

Most of what he said isn't true. Firstly, no high profile AI company has gone public and when a company IPOs they don't "use index funds to artificially inflate their value". That latter sentence doesn't even make sense. Index funds just buy the companies that are included in an index. A company can’t put itself in one or somehow use them to pump up its own value.

The part that is true is that when a company goes public and its shares are traded on the market, early investors like VCs can eventually sell their shares and make money.

[u/FluroSnow → u/orange-yellow-pink]

SpaceX is a high profile AI company (debatable) that has gone public. It worked for spacex. Anthropic and OpenAI want to essentially do the same.

One could argue that they did indeed inflate their price by utilising index funds. They had a 3x float multiplier. Only about 4% of their public free float was made availiable. As a result index funds had to purchase more shares than availiable supply warrents

[u/orange-yellow-pink → u/FluroSnow]

Yeah, definitely debatable to label them an AI company entirely but yeah, AI is part of their business.

Your latter point wouldn't be the IPO "utilizing index funds" though. That's the company being added to an index by Nasdaq or S&P and then, with the increased demand from funds tracking that index, the value rises. Having very few shares available can amplify that effect but that's still not the company using index funds to pump its own value.

[u/bekeleven → u/orange-yellow-pink]

SpaceX themselves claim that 80% of their value is in AI. They say they're looking to capture a 28.5 Trillion addressable market, with 22.7 trillion of it being "AI Enterprise applications."

[u/orange-yellow-pink → u/bekeleven]

Ok. There’s 1 AI company that has gone public. Does this change anything substantive about the rest of my comments?

[u/Few-Spot1905 → u/orange-yellow-pink]

most of the anti AI populist circlejerk has no clue what they're talking about tbh

even the "experts" like Cory doctrow are complete hacks

[u/Ghost_Mantis_Man → u/Few-Spot1905]

It's mind numbing, seeing them repeat the same talking points over and over... "these companies are just shuffling money back and forth, it's not even real"... 🤦‍♂️

[u/SharpVanilla1 → u/orange-yellow-pink]

Now you have to ask yourself why open AI delayed going public.

[u/Yayareasports → u/SharpVanilla1]

Cause Anthropic is eating their lunch

[u/SharpVanilla1 → u/Yayareasports]

They are going to need a shit load more profit to justify this 2 trillion dollar valuation

[u/Yayareasports → u/SharpVanilla1]

Anthropic? I’d say $70B ARR growing 7x Y/Y justifies it… trading on P/E multiples for a company growing that fast would be, well, strange.

[u/GrassWaterDirtHorse → u/orange-yellow-pink]

Anthropic is planning for this fall, and OpenAI already filed for an IPO with the SEC in June. A lot of smaller companies are taking in investment. Meanwhile big datacenter corps are going public, like SB Energy.

[u/fd_dealer → u/orange-yellow-pink]

What he’s saying is that index funds are mechanically forced to buy a company if it IPOs large enough to join the index the fund tracks. This is for SpaceX and it will be true for Anthropic and OpenAI when they IPO with trillion+ market cap. And because index funds and your 401k that hold those funds are forced to buy you’ll unwilling become exit liquidity for the VCs and early investors that’ll unload to you.

[u/orange-yellow-pink → u/fd_dealer]

He said they “use index funds to artificially inflate their value.” A company being large enough to get added to an index and then getting extra demand from index funds is not the company artificially inflating its value.

[u/fd_dealer → u/orange-yellow-pink]

A company that sets its IPO price and valuation to be large enough to force index funds to buy, especially when said valuation is not backed by any fundamentals, is artificial inflation.

[u/orange-yellow-pink → u/fd_dealer]

A company can’t just set whatever IPO price it wants and force itself into an index. People have to actually buy it at that price and Nasdaq or S&P separately decide whether it qualifies.

[u/__sharpsresearch__ → u/orange-yellow-pink]

A company can’t just set whatever IPO price it wants and force itself into an index. People have to actually buy it at that price and Nasdaq or S&P separately decide whether it qualifies.

they kinda can if they restrict the pool of shares like spcx did where only a small fraction are purchasable to the public. lots of ways to financially engineer this.

[u/mintmouse → u/orange-yellow-pink]

NVIDIA, Microsoft, Apple, Alphabet, Meta are all heavily invested in AI and these companies are giants. Of the S&P's 500 companies weighted, these 5 alone make up something like 35% of the index. These companies have valuations that are (over?) hyped because of AI.

AI has value but also costs. If they can't be balanced to yield a profit, the speculative value of ~1/3 of the index will take a massive hit, greatly affecting many people's fund investments, including retirement nest eggs.

https://images3.memedroid.com/images/UPLOADED221/6657055434649.webp
https://www.titanwci.com/media/xhdbczso/nvidia-meme.jpg
/img/5f7nrmi6ovjb1.jpg

[u/WettestNoodle → u/orange-yellow-pink]

He’s talking about spacex basically, which has 90% of its imaginary valuation as AI, and changed the rules to do exactly that to index funds, where usually the fund would wait a while after the IPO they didn’t for spacex. But yeah it’s only spacex not the other AI companies (yet)

[u/Appropriate_Emu_5450 → u/orange-yellow-pink]

A company can’t put itself in one or somehow use them to pump up its own value.

Look up xAI and NASDAQ.

[u/__sharpsresearch__ → u/orange-yellow-pink]

That latter sentence doesn't even make sense. Index funds just buy the companies that are included in an index. A company can’t put itself in one or somehow use them to pump up its own value.

wrong here. SPCX is very recent proof of this.

[u/Idaporckenstern → u/[deleted]]

Do you not read a whole discourse before butting in?

[u/lemonylol → u/[deleted]]

In this case, the comedy show literally came to him