Markets and greed: from tulips to AI

History is cyclical – from tulip mania to artificial intelligence. Are markets inflating again? Is AI a breakthrough or another big crash?

Human stupidity is a thing of imagination. This is something you can rely on, like the sunrise. Take financial bubbles, for example. What could be more predictable and at the same time more amazing? And although it should be clear to every reasonable person that money appears out of thin air only in magic tricks, history never tires of proving the opposite. Today we'll talk about three examples where people thought they were ready to do the impossible – double their wealth with one wave of their hand.

Tulips – flowers and ruin

We are transported to Holland in the 17th century. What kind of madness can there be among neat canals and windmills? It turns out that it is very serious. In the early 1600s, some clever Dutchman decided that the beauty of tulips was not just aesthetics, but something that should make money. This is how I was born tulip mania. The beauty of the rare tulip was so captivating that people sold their houses, and sometimes their own lives, for one bulb. Of course, this was a naive delusion, which continued until one fine day in 1637 it turned out that a tulip was just a flower, and not an ingot of gold.

Moral: nand which does not depreciate as quickly as things to which we attribute more than they are worth.

South Seas – money and fiasco

Now let's move to Britain. A bubble with a catchy name South Sea Company originated in 1720. The British government, with the enthusiasm of a teenager, struck a deal giving the company some of the government's debt in exchange for share rights. Everything sounded so tempting, like a poster about the untold riches hidden in the tropical latitudes of South America. Moreover, the company's shares grew by leaps and bounds, and investors stood in line to invest their funds in dreams of colonial wealth.

But, alas, the piastres did not flow into British pockets. The shares collapsed like a ship without a captain, leaving worthless securities in some hands and bitter disappointment in others. The bubble burst with a loud bang, and only fragments of hope remained in the market.

Mississippi – money, paper and dust

France also decided not to lag behind. In 1720, the Scottish adventurer genius John Law appeared on the horizon and proposed a brilliant idea. France needed to get rid of its debts, and Law decided that paper money and a new mMississippi companytrading in Louisiana's “riches” is exactly what will save the economy. The French happily rushed to buy shares, as if it were the key to a comfortable life.

It turned out that John Law's paper money was as ephemeral as his plans to conquer America. Soon the value of the shares collapsed, and with it the faith in all his brilliant ideas. Law turned out to be not a savior, but a fugitive, hiding from the wrath of those who lost everything.

AI is a new bubble(?)

And now to modern times. There's something always funny about people who like to say they're about to discover a way to make money out of thin air. Take a look at the AI ​​bubble. The world of technology resembles that same field of tulips in the 17th century, only instead of flowers there are billions of lines of code. Giants like Microsoft and Google, Nvidia and Meta are pumping up their investors with promises that AI is not just the future, it golden future.

Microsoft: AI is a panacea for all cases

Microsoft isn't just investing in AI—they're making it their flagship. The company has invested billions in OpenAI and is essentially trying to turn every product it makes into a showcase for the power of AI. Azure, their cloud service, is gaining new popularity thanks to its integration with AI tools. Basic Word now promises to do your work for you, and Windows is getting smarter every day. Investors rejoice and stocks rise. The agenda is clear: AI is what will make you rich and Microsoft richer. But don't forget that promises to make life easier and more profitable are not new. We have already heard such promises during the time of tulips.

Google: AI as a search torch

Google does not intend to remain on the sidelines. They, with their DeepMind and the giant Google Cloud, certainly need to be ahead of the rest. Great slogans, growth prospects and – what could we do without it – the promise that your every move on the network will be carefully analyzed by AI and will bring you unprecedented benefits. If tulips were a symbol of luxury and status, here Google offers an intellectual luxury that permeates all aspects of life. The stock is soaring as if Google has found real gold somewhere deep in the algorithms. The market is delighted, and investors see only bright prospects. But no one is in a hurry to remember that the higher the rise, the more painful the fall.

Nvidia: chips for every AI

Nvidia, with its GPUs, has become an integral part of AI development. Their chips are the lifeblood that fuels all artificial intelligence projects. And since everyone needs blood, Nvidia shares have soared to such heights that it seems they are about to hit the ceiling. Everything related to Nvidia turns to gold, and investors are already rubbing their hands in anticipation of the moment when each of their new developments turns into a real gold mine. Burst bubble? No, we haven't heard. Nvidia is the future. Just like the South Sea used to be.

Meta: AI and the metaverse – a double whammy

Meta (formerly Facebook) is betting not only on the metaverse, but also on AI. Why limit yourself to virtual reality when you can back it up with smart algorithms? AI promises to make interacting with the platform so intuitive that the ads you see will know more about you than you do. Meta shares are growing, albeit not at the same breakneck speed as Nvidia, but investors continue to believe in the fairy tale of a great digital world that is already knocking on their doors. Who can resist such a promise? Really, who?

Amazon: AI as a servant in your home

Here comes Amazon, which has made AI its assistant in warehouses, in the cloud and in every second device called Alexa. While Amazon's algorithms are trying to figure out how to properly offer you a new toothbrush, the company's shares are skyrocketing. The logic is simple: if AI works, there will be profit. No matter how you look at it, Amazon wants to be your personal assistant. And as long as everyone believes that Alexa knows them best, investors receive stable profits.

Bubble or real value

Of course, AI technologies are real, as are their applications. But there's one thing to remember: markets are overheating faster than they seem. And when expectations of quick profits do not coincide with reality, the bubble will burst as quickly as tulips in Holland or shares of the South Sea Company in London once did.

The moral of this story is simple: as long as money flows into the industry, the bubble inflates. But if investors start asking questions and there are no answers, we will hear the familiar bang again. AI is a great thing, but turning it into sustainable profits is a different story. Time will tell who will be left with the money when the bubble bursts.

Author's opinion: All exchanges live by the same law: your profit is someone else’s loss. No matter how times change, the essence remains the same: somewhere it has left means it has arrived somewhere. The only question is who won and who ended up on the other side. If you bought shares, have time to sell them on time.

Source link