The stock market is dragging me kicking and screaming into the artificial intelligence age.
I'm at the beach this week with my extended family, doing my best to disconnect from stocks and screens. Instead of scanning for trades, I'm leaving my phone on the bedside table to catch some rays and dig in the sand with the kids.
Taking a break from my screens also gives me time to think a blessing and a curse these days. There's no shortage of market action to ponder. Stocks have zoomed higher this year. New bubbles are emerging before the last bit of air escapes from the old.
And I'm stuck writing about the next big thing in tech that's dominating the market...
Such is the plight of the trader. If I want to win, I have to travel with the hot money.
These days, the hottest money is in the tech trade, specifically the AI boom. And no, I'm not exactly psyched about our new artificial intelligence overlords. But as we've previously discussed, the market's lightning-fast pivot to AI is the main driver of the tech sector's strong performance this year.
C3.ai Inc. (AI) has made a mockery of prudent, value-minded investors, exploding higher by more than 370% year-to-date. Its emergence as the dominant speculative trading vehicle of 2023 has already attracted the YOLO crowd the same kids who were slinging Gamestop and AMC options back in late 2020.
As if we needed any more evidence that frothy market conditions have returned, The Wall Street Journal just profiled an 18-year-old investor playing the AI boom over summer break.
"He's one of many who bought the dip in tech stocks last year and has poured even more money into them during their meteoric rally this year," the note reads, highlighting the college student's recent purchases of APPL, META, and NVDA.
Unfortunately, the article fails to mention whether this young Livermore is beating the mighty Nasdaq this year. But it does reveal that he isn't above falling into the market's most speculative traps, including the admission that he's made "some ill-timed bets, including on bankrupt retailer Bed Bath & Beyond."
Yet, unlike the struggling old-school meme stocks, the AI boom is thriving and potentially growing into a bigger tech moment.
META just logged 52-week highs last week, while AAPL posted new all-time highs. In addition to embracing the AI movement, the two tech giants also just happen to be releasing new virtual/augmented reality headsets soon. Meta has the Quest 3, while Apple is debuting the $3,500 Vision Pro headset early next year.
Is this where the bubble is headed? Is Silicon Valley trying to get us to strap out computers to our faces while our AI-enabled assistant reads our junk mail and fills our calendars with surprise performance reviews with human resources?
VR King Zuckerberg approaches! (Disclaimer: This photo is from 2016, so I think it's fair to say we should have seen this coming... )
It all feels so dystopian. But I'm not one to run from reality virtual or otherwise. So instead of throwing my phone and laptop into the ocean, I'll attempt to jot down some of my squishier thoughts about what's happening in the tech markets right now, and how these scenarios might play out in the weeks and months ahead.
One argument against some of this new tech (specifically virtual/augmented reality) is that consumers simply aren't interested.
It's true VR headsets haven't really moved beyond a niche market. I've never seen someone sitting at a Starbucks wearing a VR headset, whereas folks are on their phones and laptops all the time.
But it only takes one breakthrough product to radically change our collective attitude about a particular technology. Apple didn't make the first smartphone. But Steve Jobs made the first smartphone that everyone needed.
VR has seen its share of early prototypes and moderate successes, from Google Glass to the game and experienced-focused Oculus. Perhaps we're just very early in the cycle.
I'm not an early adopter. But I've learned not to knock these innovations that don't pan out right away.
Artificial intelligence has been the one major tech theme to capture investors’ imagination in 2023.
But is there any room for VR on the hype train?
I think it's possible we get a bigger tech rotation into more speculative names. AI (the stock) has obviously attracted a ton of attention. Some of the smaller, even more speculative artificial intelligence names could also catch fire as Big Tech and the stronger performing names consolidate. VR joining the party isn't that far fetched.
Plus, the VR theme goes well with AI. There's a ton of overlap with publicly traded companies associated with both.
Apple is also an important piece to the VR puzzle. The biggest of the tech giants just made a huge foray into the VR/AR space. That alone tells me this segment isn't going away anytime soon.
Finally, I wonder how much speculative juice is left in this market.
We endured an ugly bear market in 2022. But these same stocks that were at the forefront of last year's meltdown are now among the top performers this year.
But I have to imagine there's a good chunk of Covid Bubble money that isn't going to rush into the next frothy market theme. Just look at Bitcoin. While crypto posted a strong run to start the year, Bitcoin and Ethereum have gone nowhere since March. Meanwhile, tech is all the rage again.
Have the crypto kids really tossed their tokens into the speculative scrap heap to buy AI stocks? It's a theory that would be nearly impossible to prove.
We'd also need to see a bigger move to confirm a Bitcoin breakdown. But it's worth watching as Bitcoin approaches $27K again. If this rally fails, it'll be another lower-high and a quick test of $25K could be next.
Markets (and life) are moving faster these days. I'll try my best to keep things on beach time this week.
But I can't promise that these bubbly tech stocks will do the same...
We'll catch up with the action next week. In the meantime, do you agree with my thoughts on AI and tech? Let me know by emailing me here.
The Daily Reckoning