Is the AI Bubble About to Burst? Plus, Apple Bets on Doorbells

Travis Hoium (0:02)

He's the AI Bubble here. Motley Fool Hidden Gems Investing starts now.

Welcome to Motley Fool Hidden Gems Investing. I'm Travis Hoium, joined today by Lou Whiteman and Jon Quast. Guys, we try not to talk about the AI Bubble all that much here, at least on the shows that I'm hosting, because I think it's one of those topics that you could talk about it absolutely every day. And one day you'll be right, but most days you're going to be wrong.

But Ray Dalio had an interview that recently came out, where he was talking about how this is going to burst relatively soon, higher interest rates are going to be one of the catalysts for that potential bursting of the bubble. And Jon, the thing that sticks out to me as I've thought about this, I like to think about what are the sustainable business models that are coming out of the AI industry. It doesn't seem like there's a lot of them despite the fact that we're spending several trillion dollars. But the thing that really sticks out is that we keep taking out more and more debt and it's like every single company, even the hyperscalers are taking out more and more debt. Eventually, that might be problematic. But what do you think about what Dalio had to say?

Jon Quast (1:07)

Yes, Ray Dalio. Listen, he's an incredibly smart person and I do like listening to him. At the same time, he was talking about bubbles before AI was even a thing. So he would be talking about a stock market bubble regardless of what was happening right now. In fact, he has been. So that's why I feel really good about saying that.

And to put this into perspective a little bit, what did he say? He did not say we're at a place where this is getting close to a bubble bursting. He said, we're close to a point where an AI bubble could burst. We're at the step before being close to a potential bursting. So I feel like he's really-

Travis Hoium (1:48)

Before the point that matters.

Jon Quast (1:50)

Exactly. So to quote Aragorn from Lord of the Rings, I mean, it may be coming one day, but it is not this day.

Travis Hoium (1:58)

Lou, does that resonate with you? I think this is one of those things where it seems like the risk factors are getting bigger and bigger. We just learned over the last 24 hours that SpaceX is looking for another $40 billion in debt. Everybody almost at this point is taking out debt to buy GPUs.

Is that just okay until it's not okay?

Lou Whiteman (2:18)

For the record, Bridgewater is long a lot of things. So I don't know if I did. Delio, I don't think he's a perma bear, but he does. Yeah, he's been saying this a while. Here's the thing. And like Jon said, I don't disagree with anything Delio said. I think the scenario he lays out is likely to happen. The question is timing. Ray could have said this six months ago. He did. He could have said it a year ago. In fact, he did. He could be saying this six months from now. So as investors, I don't see this as signal, but I do think like, look, we need to think of the world in terms of pendulums. This, like everything else, will not last forever. It doesn't mean avoid. It doesn't mean go short, but it means set positions accordingly.

Look, we are closer now than we were to inevitably the music slowing or stopping. I don't really think debt is what gets us right now. I would push back, and I don't think Ray was really saying that, but I would push back if he says that now. I think debt is manageable until it isn't, and again, when does the isn't happen?

Not yet.

Travis Hoium (3:24)

So Lou, how are you positioning yourself? How do you think about what positions am I going to avoid? Where am I going to look for opportunities? Because I think that's ultimately the question that we should always be asking right now is, you're right.

I've heard a lot of really smart people say, of course, this is a bubble. And that doesn't mean that it's not 1997, and we have another three years left of this. But what I always think about is, do you want to be running in front of the bubble? Do you want to be buying the most hyped names in, not know whether it's 1997 or early in 2000, where you're going to suddenly be sitting on a company that you thought was phenomenal, JDS Uniphase was mine back in those days, that ended up being a complete disaster. So how do you think about positioning yourself in a moment like this, both from a risk and an opportunity side?