Blain’s Morning Porridge October 8th, 2026 – The AI Bubble, Global Shipping and Palestine
“Everyone will own a Blackberry by 2015.”
Just how much money is the AI boom going to make? No one really knows, but everyone is placing their bets. AI dominates the stock markets, but is beginning to worry many investors in terms of likely returns. While AI technologies are changing the world, what we see today may not be what we get tomorrow if new technologies emerge, and the current valuation metrics change. AI may be distracting us from real economic impacts elsewhere – like shipping costs.
Key Takeaways:
- P/E ratios in the AI suggest it’s not quite as frothy and bubblicious as many commentators fear. Many of the key AI firms are well established, mature diversified businesses. Should returns disappoint losses may not be total.
- The AI build out is putting companies under strain and commits them to raising debt to finance infrastructure – a factor equity analysts assume will be covered by revenue growth. Maybe not.
- The capital markets boom in AI infrastructure is similar to the Telecoms boom during the Dot.Com bubble in 2000.
- European capital markets are overweight funding US AI infrastructure – that is something strategists and politicians should consider: Europe funding AI in America, while underfunding Europe’s parallel tech businesses.
- Anthropic’s $2 trillion IPO valuation assume future enormous sales growth and profits, but comes at a time when companies are reining back early AI spending to control costs and optimise their use of AI.
- The AI Boom may be obscuring deepening trouble elsewhere. One such may be shipping where conflict has sent the cost of tankers soaring. That has critical implications for supply chains and trade.
- Finally, yesterday was October 7th, the anniversary of brutal Hamas attacks on Israel and the escalating war of destruction on Gaza. The cycle of hatred and conflict in the Holy Land has to end. Maybe it’s time to look to the coming Olive Harvest in the West Bank and remember the Olive Branch is a universal symbol of peace.
The AI Boom/Bubble?
There is one primary reason not to worry about the AI Bubble: the multiples that AI firms are (apparently) trading on – between 20-30 Price/Earnings are not outrageous in the grand scheme of things (the S&P 500 is around 19x P/E). (Space X and Palantir aside.) I would argue it’s how you present the numbers that matters; picking the higher of historical real numbers (trailing P/E) or fantabulous visions of future P/E. Google trades on 18x TP/E but 26x FP/E. Doesn’t really matter – most of the mature AI sector trades as a “strong growth stocks with defensible moats” in the language of Wall Street puff-merchants.
Or should you look at historical cash flow given the amount of money they are spending? In that case the numbers start to look more speculative as they start to look perilously high, or spend more than they earn, and borrow the rest.
Which does lead us to a critical parallel between the Dot.Com bubble in 2000 and the AI boom. 26 years ago, the Dot.Com boom held the market in thrall. Investors were confident all future commercial activity would happen across the internet. The global capital markets were then absolutely dominated by the Telecoms sector – Telecom’s firms accounted for some 25% of global corporate debt issuance, and when you added in the other tech-firms that formed the core of the Dot.Com bubble – the tech, media and telecoms sector – more than 60% of total equity issuance.
(I remember working harder to win a bond mandate from Inmarsat in 2000 than I’d worked on any previous deal. Despite doing some brilliant work (and buying a very expensive early satellite phone), we lost – which is when I first wrote down my observation that no Corporate Treasurer ever lost their job for giving Goldman Sucks the mandate).
I asked AI to trawl market data from 2000. Telecoms and Tech firms made up over 75% of global IPOs – lust like SpaceX, Anthropic and OpenAI will be the remembered deals of this era. The volumes of debt and equity in 2000 were double any previous year. Over the next few years, following the Bubble’s inevitable “Pop” their share contracted to a small percentage of global financial activity. A decade or so later the biggest hurdle to a new fibre-optic cable deal was the recollection of how many new cables of the 2000 vintage never got “lit”.
The bursting of the Dot.Com bubble ranks alongside a host of other Tulip moments that have spectacularly burst over time – from railway bonds in 1873, Florida Land in 1929 and mortgages in 2008. It’s a lesson we are apparently incapable of learning.
Yesterday, Torsten Slock of Apollo, (the economist I most often cite because he delivers key points in single paragraph shouts with no explanatory filler), in a comment entitled Europe is Financing the US AI Buildout, noted that hyperscaler funding in AI in Europe now accounts for the largest issuance sector of the supposedly moribund European capital markets. (Excluding government debt.)
In the USA, the hyperscalers represent less than 8% of the total corporate debt market issuance. In Europe, hyperscalers are 10% of sterling issuance, and a staggering 22% of Swiss Franc issuance.
Its puts my complaints about how deep US capital markets funding America’s market valuations (which is mistaken for exceptionalism) in stark relief – turns out one reason the US is so “exceptional” is Europe prefers to fund US firms than their own. (I have found exactly the same thing in Private Equity – European fund managers have told me they are already heavily invested in PE, citing reasons like investing in SMEs and growth, but when I check their holdings its usually US PE funds engaged in M&A and debt plays!)
IPOs in AI may be the place to look. Anthropic is expected to IPO next month at a valuation around $2 trillion. Wowser. To trade of a P/E of 30, at a 25% net margin… that will require annual sales in excess of $260 bln. Anthropic is currently doing $44 bln of annual revenues based on its’ last quarter. Given what I’m hearing from big firms – that they are seeking to control and analyse their AI budgets in order to harness it more cost-effectively… then the pace of sales growth may be set to dramatically slow.
I am not arguing for a sudden bust in the AI bubble – it’s clearly paradigm-shifting technology. The players are mostly very large, mature firms with sound profits. It’s still in “spurt” phase – very swift adoption – but is moving into a more considered part of its S-Curve as users seek to optimise it and look at cheaper alternatives – including building their own AI, or using Chinese alternatives. It depends on what it will really be used for… accountants probably don’t need AI that is capable of designing new cancer cures or writing the code to control fusion reactors.
However… another real issue may not be the amount of capital that is being harvested to feed the AI boom, but how the expectations around it are driving the market to the exclusion of all else.
Yesterday I commented on how slipping smaller tankers through the Straits of Hormuz has eased many of the concerns about oil prices. Apparently, deliveries of Oil from the Gulf are back up to some 70% of pre-Trump normal. That’s one reason the Fed looks to be on hold for the next rate hike – which underlies the current positive mood.
But the reality is the Gulf Oil crisis is far from fixed. There are significant consequences ahead. One of my chums in the shipping industry bought me up to speed on Tanker Prices. Because of the number of attacks on tankers – in the Gulf, the Red Sea, the Black Sea – the cost of hiring a single Very Large Crude Carrier (VLCC) from the US to Asia is now $77 million, more than 700% higher than it was this time in 2025. That’s a sign of just how fundamental the damage that’s been done to global trade and supply chains is proving to be. Bear in mind, Trump says he going to restart the war and bomb Iran some more after he gets these pesky midterms out the way.
I missed that hike in shipping rates. I used to follow the Baltic Dry Index every day for decades, and more recently the cost of a shipping container from Shanghai… but following the outbreak of the Iran war, and replacing my old PC, it slipped. My bad…
Palestine and Israel
Yesterday was the 3rd anniversary of the October 7th attacks on Israel by Hamas terrorists. 1200 Israelis were murdered and 250 kidnapped. The assault was utterly barbaric, shocking and viscerally illustrated the worst that terrorists are capable of. It was medieval – but that is the woeful reality of the region where ingrained hatreds have outweighed decency.
What Westerners call the Holy Land has been riven and in dispute for millennia. The Old Testament describes the multiple travails of just one of the local tribes being displaced to Egypt to become slaves, escaping captivity to regain their lands through conflict, losing wars, recapturing Jerusalem, before being exiled to Babylon, returning, rebuilding and then being conquered by the Romans, 2000 years of wandering as a displaced people, and the horror of the Holocaust. Every tribe in the region has a similar backstory – although most were finally united under the different banners of Islam – which as a monotheistic religion has shared roots with Judaism (as has Christianity). The folk memory of the Crusader era remains strong across the region – which is why the West is distrusted.
Today the Arabs and the Jews are caught in a repeating cycle of violence David and Goliath would have recognised. The way the conflict has turned hot and bitter after small steps towards peace and recognition, is also closely linked to the current period of hegemonic change. Creating instability in the region, and critically stopping a peaceful integration of Isreal with the Gulf States, was a clear Iranian objective. Iran controls Hamas. Iran is a client of China, which would like strong, more direct influence over the oil-rich region.
The horrors of October 7th on Israel were mounted by Iran’s proxy, Hamas, with the absolute certainty of how Israel would react, making it an even more calculated assault on humanity. Hamas’ leadership deliberately offered up the population of Gaza as a pawn sacrifice – putting them in the way of the bullets, artillery shells and missiles they were confident a shocked and vengeful Israel would throw at them.
The scale of human misery we still see in ongoing conflict in crushed and ruined Gaza today was exactly what Hamas expected and required. 75,000 Palestinian men, women and children died to win Hamas a cynical strategic propaganda victory – today it is Israel than finds itself the pariah state.
A small percentage of the dead were Hamas terrorists. The rest were people, people perhaps voted foolishly, but deserved better – their lives blighted by what is essentially tribal conflict. Not all Palestinian’s are bad. Not all Jews are good. But what is certain is that if they keep murdering each other the hatreds and conflicts will continue to fester and deepen.
At the conflict’s core is The Land between the River and the Sea – not a Palestinian slogan, but the reality of how two tribes, who effectively believe in the same god (but in very different ways) can live together, and thrive. There has to be engagement. No matter what we think of how despicable Hamas remains, humanity is critical. There needs to be a coming together of saner minds than Hamas, but equally in Israel, where extreme right-wing Israeli settlers regard the indigenous Arabs with nothing but callous contempt.
But there is hope.
In recent weeks a new theme has emerged. You can hear it in reports from the region. I’ve heard journalists talk about it, politicians refer to it, and villagers and farmers point to the Olive Trees that pepper the West Bank. The new theme is how the escalating violence is putting the vital West Bank Olive Harvest at risk – the Olive, the eternal symbol of peace and forgiveness since the story of the Ark.
I will not be the only middle-aged person whose kids who have been deeply politically affected by the ongoing events in the region. My daughter, Jenny, is a feisty and driven young woman who does not hold back in expressing where she sees right and wrong. She comes down hard on the side of the innocent.
I am therefore rather proud of her personally literally taking small step towards putting what is right and wrong in place. Jenny is raising funds for Medical Aid for Palestinians (MAP). She is doing a sponsored walk of 195 km, representing the distance from Jenin to Gaza. She is doing it to bring focus to the escalating violence in the West Bank inflected on local Palestinians by the more brutal Jewish settlers. We know they are in the wrong, their actions are brutal, and that they are perpetuating the violence – much as Hamas did. The wrongs of Hamas don’t justify settler brutality.
Gaza, the West Bank, and Israel is a hateful morass. So was Northern Ireland. So have been a million human conflicts. Eventually, even the longest feuds can be settled. It just takes time and understanding to learn to live together.
If you are interested, Jenny’s web page is here. Don’t think you should donate because you enjoy the Morning Porridge. Donate because you care about peace, the innocent, and perpetuating violence and injustice. Tiny minorities both sides are stopping the vast majority from moving forward.
No more preaching from me…
Out of time, and back to the day job…
Bill Blain
Author of the Morning Porridge
CEO Windshift Capital
Advisor – Spitfire Strategic Capital
Meanwhile, don’t forget about my new book: The Battle for Hamble
You can read a review on the Society of Professional Economist’s website here.
