Amazon is worth $2.81T right now and only represents 4.03% of the S&P500.
So a $1T share would represent less than 2% of the S&P500. This is significant for a single company, and 6% for 3 shit-tier companies (SpaceX, OpenAI and Anthropic) is even more significant, but we're far from "losing retirement if they go bust"-levels.
It is especially telling if we try to list out all the psychological biases at play:
- Availability & salience bias - vivid, memorable things feel more important than they are
- Narrative bias - humans tend to think in stories, and AI tells plenty
- Recency and novelty bias — new things feel more consequential than established ones (this one already drives like 80% of all HN content btw)
- Proportionality neglect - people are bad at intuitively grasping what percentages mean, even if they see the stats
- Social proof and reflexivity - coverage signals importance, and drives more coverage
- Status quo invisibility - things that work reliably become invisible (surprisingly, HN is really good in terms of working against this bias, I feel like at least 5% of all posts are some niche "inner daily workings" topics)
- Speculation premium in attention - uncertainty generates more discussion than certainty
- In-group signaling - cutting-edge things are status markers among influencers[0] https://finance.yahoo.com/markets/article/ai-is-carrying-the...
https://en.wikipedia.org/wiki/Public_float
I hear S&P 500 is weighted on float rather than on market cap, while Nasdaq 100 is based on market cap.
> most share indices weight firms in proportion to the value only of shares they have released for public trading (the “free float”). For SpaceX, this means just the $75bn or so of stock it intends to issue in June—so its initial weight in the S&P 500 will be around 0.1%. The NASDAQ 100 is an exception, and has changed its rules to weight companies at up to three times their free float, in an apparent effort to woo Mr Musk. Even so, SpaceX’s probable initial weight in this $40trn index will still only be around 0.5%.
NVIDIA Corp NVDA 8.02%
Apple Inc AAPL 6.53%
Microsoft Corp MSFT 4.84%
Amazon.com Inc AMZN 4.01%
Broadcom Inc AVGO 3.36%
Alphabet Inc GOOGL 3.32%
Alphabet Inc GOOG 3.09%
Meta Platforms Inc META 2.23%
Micron Technology Inc MU 1.71%
Advanced Micro Devices Inc AMD 1.19%
Oracle Corp ORCL 0.99%
That's 40% of the S&P 500.
And if anything happens to the AI bubble all of these go down together. While they won't all go to zero and cause a "-40%" overnight, Nvidia's rise is so meteoric that they will trigger a -8% and the rest's valuation has more than doubled since 2023. Even Apple, which isn't much of an "AI company", is still following the AI-tech hype.
If Nvidia eats shit, and the others go -50%, that translates to an overall ~-24% on the stock market.
Before any contagion outside the tech industry is considered. Look at the Dotcom Bubble and a -40% to -50% crash is quite plausible.
I do not want things to go kaboom, the CAPE index seems to indicate that what I want isn't relevant.
Google and Amazon fund Anthropic which returns the favor with cloud purchases at these hyperscalers. So, google and amazon show increased earnings (via anthropic share markup) and increased cloud revenues via anthropic purchase. SpaceX didnt want to be left behind, so, it signed a deal with Anthropic.
Meanwhile capex at hyperscalers, VCs, PE etc is funding the party. Capex is not a concern to anybody as it doesnt appear on either revenues or earnings at the hyperscalers.
Downstream is partying from all the spending (server makers, chips, disk etc).
Whats not to like ! this is a perpetual money machine. Lets partay !
This is the key comparison. It's not the "Pets dot com" side of the DotCom bubble, but the Telecom Bubble that followed. (All the AI startups that just repackage someone else's inference will go the way of Pets dot com, but their economic impact is minimal)
Certainly, Big Tech has massive cashflows. But those cashflows were priced into the 2023 valuations.
That is what makes the current valuations so ominous. Just a correction back to 2023 would be enormous. And as you note, a lot of these companies are taking on debt, dumping huge investments into AI. They're worse off than they were in 2023. Oracle may straight up go bankrupt.
> Oracle may straight up go bankrupt.
And nothing of value would be lost.
And that is on top of the IPO companies losing value themselves, this seems likely to trigger a doom-loop until the market reaches a low enough value. This will likely trigger layoffs and companies reducing spending and investments further depressing the economy. Added inflation from oil prices and war.
This doesn't seem like one big balloon ready to burst, but more like a house suspended by hundreds of balloons and they are about to be ran over by an airplane.