Blain’s Morning Porridge July 24th – Tesla may trigger M7 Wobbles as AI risks rise.
“If you don’t know what the product is – then you are the product.”
Three risks for markets to fathom this morning: What Tesla the Meme-stock means for the Mag7, how AI risks are multiplying, and what doing a course on AI revealed about its’ true purpose.
Busy day in prospect today up in the smoke and mirk of an overly warm Londres. This morning will be bit rushed… there are trains to catch…
Let’s get Tesla out the way first… It’s become a meme stock. That was confirmed by Elon Musk’s “performance” on the Earnings Call last night. It is not a stock professionally competent investors should take comfort in – it’s remaining crutch is believers whose religious intensity as to Elon Musk’s genius could be set to visibly crack.
Alongside the dismal 12% earnings stumble, a tumble in its battery business, vagueness about how regulatory approvals – which are in the gift of Donald Trump who hates him – will enable Tesla to roll out Robotaxis across half of America this year (!!!!), and the crashing revenues from green credits – Musk did not look a man in command of himself, let alone the firm. (You might also have spotted a tale y’day that Musk’s “brain” company, Neuralink, is set for $1 bn revenues by 2029 from brain implants they haven’t yet built. It’s currently valued at $9 bln, has fitted less than a dozen implants, and has zero regulatory approvals. That’s all a bit delusional for me.)
Tesla is a firm in trouble. Musk is spinning like a top. That’s a problem when successful companies and powerful personalities are the key components of The Magnificent Seven Myth.
Alongside Apple, Microsoft, Nvidia, Amazon, Alphabet and Meta, the M7 are about 1/3rd of the S&P’s total valuation, 25% of the total US market. As we’ve been repeatedly warned in recent months, the M7 represent an unprecedented level of concentration risk, even more so than the dot.com bubble 25 years ago!
Now the whole M7 could be set to wobble for two reasons. Together they represented a “belief-chain” of supporting narratives. That was sustained by their undoubted successes reinforcing each other, the belief that competition between them was driving them forward, sustaining the illusion of unlimited US Tech exceptionalism among investors. That M7 Trinity worked rather well… till now it doesn’t…
When one of the M7 names, Tesla, has so clearly passed the threshold from Growth Stock into Disbelief territory that’s when we need to look for weakness in them all. And that’s apparent in the second issue, M7’s high valuations are largely based on current market narrative – the future value of AI. Together these two risks are screaming “Danger, Danger Will Robinson, Danger.”
Tesla is clearly the weakest name in the Mag7 pack, but Nvidia is also a highly speculative name, fuelled largely by the very high expectations on AI driven demand for chips. (According to BBerg, Trump was mulling over breaking the firm up to encourage competition!) Meta and Alphabet are very exposed to the AI bubble, while Microsoft only slightly less so. All are spending billions to stay in the AI flow – but much of that only inflates the spending and turns it into a “wallet waggling contest” between them. Google announced y’day it’s increasing its capital spend this year to $85 bln. (Meanwhile, the Chinese are quietly getting on with it – cheaper.)
Perversely, Apple’s failure to get to grips with what it wants to be in AI may be a blessing when the AI bubble bursts. That probably won’t help much when the reality it’s just a tech firm that sells a limited range of very expensive goods in a market where other firms are more innovative and cheaper becomes apparent – probably in the coming consumer downturn. (Yep, got to write about that soon – US consumers are “tapped out”, bust and that’s a very bad thing when the stock market is bouncing to new records every day!)
All thing’s considered… last night’s Tesla numbers were bad. So bad they may have undermined the rest of M7. All it takes is a few rocks to wobble to trigger a landslide, and we are getting to the stage where the AI bubble looks very, very set to pop. All the ingredients for a spanking market correction are to hand.. (Rather reminds me of 2008 when US CDO funds started wobbling and suddenly Bear Stearns was in trouble, and the writing appeared on the wall for Lehman… just saying..)
Let’s move on to AI.
I came across a great quote yesterday: “The act of writing is an act of thinking. Writing is Thinking.” It was ascribed to Derek Thompson, who writes for the Atlantic – which I am trying to wean myself off reading because I agree with it too much! At the moment I am struggling through the summer trying to write two books. One is about economics, and the other is also a comedy. Writing matters to me. I guess that makes me a thinker – although She-who-is-Mrs-Blain might disagree…
What I know is you need ideas to write, and thinking is obviously critical to have any kind of insight. To think you have to know. And to know you have to learn. You don’t learn by asking a computer to do it for you. Knowledge is something you acquire from the gift of curiosity – another factor of thinking. Thinking, ideas and insights are what make the world tick and tock.
You can’t “learn” or think via an AI. It should just be a tool – using AI to broaden what you know, and dig deeper, but at some point you run the risk of no longer leading the AI, and it is leading you. That is a danger I fear folk are unaware of when I read how they now regard their AI as a trusted friend and colleague. Some folk plan their lives around the schedules their AI sets up for them.
There is an old tech adage: “If you don’t know what the product is, then you are the product.”
There is no substitute for thinking for ourselves. Yesterday I enrolled myself on an online AI course. It scared the bejesus out of me.
I’d read the reviews which all said how wonderful it was. It told me I would learn to let the AI execute my businesses for me – which made me curious. What I actually found it was a veritable word-soup of gloop – which probably sounded fantastic and comforting to well educated non-thinkers, but stripped down meant nothing. (And I did not learn how to use AI to find me 300 new VC investors in a particularly fine new business I’m funding either…)
I was immediately apparent what the objective of the course was – to get me to use AI in every single aspect of my work. The very reasonable presenter kept telling me the same thing in multiple ways: open the gate to AI. I should allow AI to watch, listen, learn and store every little thing that makes me extraordinary today, but I suspect will me render me obsolete tomorrow when AI hands me my P45 dismissal notice from the businesses I’ve founded.
- It advised me to adopt an “AI-mindset”, factor AI into managing tasks, collaboration, team values and goals, problem solving.
- It preached how I should invite AI into all my client and team interactions.
- I should put AI front and centre of “every task, question and challenge”, and at the centre of my firm’s culture and outlook.
- AI should be critical to how my firm’s staff, processes and products interreact. I should incorporate it in all aspects of my business objectives.
- AI will add creativity, efficiency and satisfaction to my business.
One of the top tips was to use Otter AI – which I now find is automatically switching itself on to precis all my Team calls (I recently dumped Zoom.) I’ve disabled it.
There is more, but I think I’ve made the point. What worries me is most people I know are blithely buying into this crap – it feels like spyware inserting itself into all aspects of business, giving real intelligence on what we’re up to. We think we’re using AI to improve our workflow. Nope. More likely it is monetising us.
I am certain it’s a Trojan Horse letting AI firms into the core what makes businesses tick.
It’s not that I think any AI will learn much about the Private Capital markets it didn’t already know from me and Windshift Capital or the Morning Porridge…. But why would I trust the same tech lords that stood behind Trump at his inauguration with the secret sauce of my methods?
Out of time, and off to catch the train…
Bill Blain
Author, The Morning Porridge
Partner Shard Capital
