How Much Wealth an AI Stock Market Crash Could Destroy(economist.com)
economist.com
How Much Wealth an AI Stock Market Crash Could Destroy
https://www.economist.com/interactive/graphic-detail/2025/11/05/how-much-wealth-would-be-destroyed-by-an-ai-stockmarket-crash
109 comments
I've never felt right about the framing of "destroying wealth" when stock prices go to some new number. If anything, the word "reflecting" seems more applicable?
Indeed, it just means that the really expensive thing that people put a lot of time into building turned out not to be as valuable as expected. The wealth isn't destroyed, it's being discovered not to exist; a vanishing mirage.
The relevant question is 'What is a custom Meta AI datacenter valuable for, after a hypothetical AI crash?'
Crypto -> LLM -> Repurpose Crypto Power Contracts to Feed LLM Datacenters -> AI crash -> Repurpose LLM Hardware/Power for Crypto ?
Would be curious if anyone has run the numbers on what LLM hardware capacity (including upcoming) would do to blockchains, if a big chunk were reallocated.
Crypto -> LLM -> Repurpose Crypto Power Contracts to Feed LLM Datacenters -> AI crash -> Repurpose LLM Hardware/Power for Crypto ?
Would be curious if anyone has run the numbers on what LLM hardware capacity (including upcoming) would do to blockchains, if a big chunk were reallocated.
Also: "The stock market is the only market where people complain when things go on sale." -Warren Buffet
If you're in a "selling stock" part of your life I understand, but if you're in a "buying stock" part of your life it's worth reflecting on the quote until you can shake the "recent price action IS investor psychology" out of your head.
If you're in a "selling stock" part of your life I understand, but if you're in a "buying stock" part of your life it's worth reflecting on the quote until you can shake the "recent price action IS investor psychology" out of your head.
That's very witty, but not really accurate. I think in any market where you're the seller, you will complain (or at least be grumpy) when your competitors slash prices. Especially when you're not sure the sale is temporary, and the market price is now below your cost basis on your inventory. And especially if your accountants are forced to write down your inventory value to the new, lower price.
Even when people are only buying with no intent to sell, they'll often complain if prices fall right after they've bought an item, and ask for a rebate for the difference, because they feel they deserve the new lower price. Many retailers are aware of this psychology and do offer some sort of forward-looking price match, both to help buyers overcome that hesitation, and to avoid going through the paperwork of returning and refunding a used item just to sell the same thing again anyway. But the stock market offers no such buyer protections.
Even when people are only buying with no intent to sell, they'll often complain if prices fall right after they've bought an item, and ask for a rebate for the difference, because they feel they deserve the new lower price. Many retailers are aware of this psychology and do offer some sort of forward-looking price match, both to help buyers overcome that hesitation, and to avoid going through the paperwork of returning and refunding a used item just to sell the same thing again anyway. But the stock market offers no such buyer protections.
The numbers in your brokerage account invite you to pretend that you are a seller at times when you are not. It's a nice fiction when prices are going up and a dark story when prices are going down but it's just as illusory either way. We are in violent agreement that price action is psychology, the point of the quote is to fight the loss aversion bias that was calibrated for hunting animals in the savannah not trading stocks. It's a point of fact that if you're a net buyer, gaining the option to buy at a low price outweighs losing the option to sell at a high price, and if you let the latter psych you into not taking advantage of the former you are doing yourself a very common, very human disservice.
But the people complaining the most about falling prices are the sellers, of which there are necessarily many. (If there weren't, the price wouldn't be falling!)
It's not a flaw for people to think from the seller's perspective. For you to be a net buyer, someone else has to be a net seller.
Not to mention the unhappiest of all: the people who borrowed money against the value of the assets they owned.
It's not a flaw for people to think from the seller's perspective. For you to be a net buyer, someone else has to be a net seller.
Not to mention the unhappiest of all: the people who borrowed money against the value of the assets they owned.
> But the stock market offers no such buyer protections.
In some situations you can deduct losses in the stock market from the taxes to pay over the next 5 years. Not the same, but not nothing.
In some situations you can deduct losses in the stock market from the taxes to pay over the next 5 years. Not the same, but not nothing.
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Timing the market is hard. You might get lucky, but you probably won’t. By that reason, you are unlikely to get unlucky if your horizon for holding the stock is far enough off.
Well, that and the housing market.
Does it materially impact people's pensions?
Globally, pension funds hold approximately $5–7 trillion directly in the top US tech stocks (the "Magnificent Seven" and adjacent AI infrastructure).
Also in the last couple of years many pension funds have moved money into Private Equity and Private Credit to chase higher returns and they're the backstop for all the off-books AI datacenter buildout debt?
Globally, pension funds hold approximately $5–7 trillion directly in the top US tech stocks (the "Magnificent Seven" and adjacent AI infrastructure).
Also in the last couple of years many pension funds have moved money into Private Equity and Private Credit to chase higher returns and they're the backstop for all the off-books AI datacenter buildout debt?
Yes, it would assuming pension funds have AI/Tech stock exposure.
- A rule of thumb suggested by one study is that every $100 drop in stock market wealth leads, on average, to a $3.20 drop in consumer spending. Under such an assumption, a dotcom-style crash would cut American consumption by about $890bn, or 2.9% of GDP.
- A rule of thumb suggested by one study is that every $100 drop in stock market wealth leads, on average, to a $3.20 drop in consumer spending. Under such an assumption, a dotcom-style crash would cut American consumption by about $890bn, or 2.9% of GDP.
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It can, but on paper pension funds will invest in long term low risk stonks so an AI crash would only be a minor setback.
In the same way that winning at roulette does.
Is roulette wealth creation and destruction?
Is roulette wealth creation and destruction?
Yeah. You don't own more or less of anything. Five sticks of gum, a car, 10 shares of $MSFT, a Mewtwo Ultra Rare.
You have exactly same assets as before. The businesses of which you are a fractional owner have the same fundamentals.
But other people won't trade other assets for yours at the same rate.
You have exactly same assets as before. The businesses of which you are a fractional owner have the same fundamentals.
But other people won't trade other assets for yours at the same rate.
Don't the invested dollars poured into infrastructure that won't yield gains represent a loss of value? Especially if the same investment could have been put to work somewhere more fruitful.
It's (1) a loss of expected value (2) misspent resources.
You spent $X to buy RAM chips, expecting that you could produce $Y with it. But you didn't. So you (1) failed to realize the expected value $Y, and (2) misallocated $X, which in hindsight you would have used differently.
Again, that's all learning that future expectations do not match reality.
The decision/action happened earlier, and is separate from the realization. Attributing the material loss to the realization is misplaced.
You spent $X to buy RAM chips, expecting that you could produce $Y with it. But you didn't. So you (1) failed to realize the expected value $Y, and (2) misallocated $X, which in hindsight you would have used differently.
Again, that's all learning that future expectations do not match reality.
The decision/action happened earlier, and is separate from the realization. Attributing the material loss to the realization is misplaced.
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At the same time, retail investing has grown a lot in the last 10 years. A lot of people treat their portfolios as a line-only-goes-up bank account because that has been mostly true for a while.
Yeah. Investing in stupid things can absolutely destroy wealth. But it's not the correction that does the destruction; that's just when people notice it has been destroyed.
You can always cash out and realize gains. People have regret when they don’t do that and the stock crashes, they felt like they lost something.
Indeed. If it is all a Ponzi/bubble there was no wealth to begin with.
More important for the wider economy is how much liquidity it destroyed and the mayhem it will do in the bond markets.
But, since the top 10% of American savers (including almost all of US Congress) put most of their savings in stocks they will get a massive bailout. It will make the 2008 Wall Street bailouts look like pocket change. I bet they will say it's for national security or some other lame excuse.
More important for the wider economy is how much liquidity it destroyed and the mayhem it will do in the bond markets.
But, since the top 10% of American savers (including almost all of US Congress) put most of their savings in stocks they will get a massive bailout. It will make the 2008 Wall Street bailouts look like pocket change. I bet they will say it's for national security or some other lame excuse.
> Indeed. If it is all a Ponzi/bubble there was no wealth to begin with.
lotta people buying houses and cars with AI seed company money that funds their 400k salary.
lotta people buying houses and cars with AI seed company money that funds their 400k salary.
Every right-thinking plutocrat knows to use catastrophized language for any serious drop in his paper wealth. Otherwise, how would he argue for a fat government bail-out?
For my financial planning, I discount my stock portfolio by 20%
It's so blatantly tied to who's likely to lose the most money. The unreal part to me is that the major news outlets are so much more obvious in their framing now.
AI has a lot of rich people riding on its success, and this time's different for, IMO, two major reasons...
- First, the companies most invested in AI are perfusing it everywhere. Many parts of these big businesses, if not the business as a whole, is invested heavily in the success of LLM-based products. Microsoft is probably the poster child for this, where you can't use practically any of their modern products without copilot or some such being shoved in your face. OpenAI and Anthropic are both companies whose existence is predicated only by a viable LLM-based product. Nvidia and (as of their last-week's announcement) Micron are both now also heavily invested in the success of this technology, though they're also surely not the only companies in the hardware sector to be following this path to some degree.
- Second, the actual individuals behind these companies are the world's richest people, and much of their fortune comes from stock in these companies, and loans taken out against that stock.
AI has a lot of rich people riding on its success, and this time's different for, IMO, two major reasons...
- First, the companies most invested in AI are perfusing it everywhere. Many parts of these big businesses, if not the business as a whole, is invested heavily in the success of LLM-based products. Microsoft is probably the poster child for this, where you can't use practically any of their modern products without copilot or some such being shoved in your face. OpenAI and Anthropic are both companies whose existence is predicated only by a viable LLM-based product. Nvidia and (as of their last-week's announcement) Micron are both now also heavily invested in the success of this technology, though they're also surely not the only companies in the hardware sector to be following this path to some degree.
- Second, the actual individuals behind these companies are the world's richest people, and much of their fortune comes from stock in these companies, and loans taken out against that stock.
They stand to *personally* lose a significant-even-to-them sum of money if the bottom falls out of this thing. If this weren't the case, I'm absolutely certain we wouldn't be seeing as much reporting about how an AI crash would hurt the average household. When smaller crashes happen (even those that affect more average households), it's inevitable, or it's good for the economy in the long-term (it's a correction, after all -- how could that possibly be bad?), or it's the consequence of people's personal choice to invest one way or another, but because the uber-rich were spared, it's *not really that bad.*
It would be like SVB all over again. Small governemnt, anti bailout, pull yourselves up by your bootstraps tech CEOs on TV crying and begging for someone to cover their losses.
Same as it always was. Privatize gains, Socialize losses.
I don't think that is likely this time. Injecting capital to cover losses doesn't bring back the forward looking valuations so stock prices would remain down anyway. Gov isn't going to fund losses for like Microsoft.
The top 10% will not be left holding the bag. They will get a bailout by the taxpayer in some form or another, like quantitative easing (Fed purchasing) or some national security plan spending trillions. Note almost all members of US Congress, both parties, invests in these stocks heavily.
Anyone holding a popular index fund are also invested in these stocks. Thats basically their entire 401K.
Airline CEOs, Auto CEOs, Bank CEOs have all done it in the not distant past. Eventually, you have to fly the private jet to Washington and sit at a comittee and beg.
Tech CEOs are not as special as they think they are, one day they too will be there begging, like a dog.
Tech CEOs are not as special as they think they are, one day they too will be there begging, like a dog.
Too Big to Fail 2.0
https://archive.md/EzGW2
- A drop in nominal values on the same scale as the dotcom bust would wipe out $16T, or 8% of American household wealth. Foreign investors would lose $7T.
- A drop in nominal values on the same scale as the dotcom bust would wipe out $16T, or 8% of American household wealth. Foreign investors would lose $7T.
The wealthiest 10% of Americans own 93% of stocks even with market participation at a record high - https://finance.yahoo.com/news/wealthiest-10-americans-own-9... - January 10th, 2024
> The richest Americans own the vast majority of the US stock market, according to Fed data. The top 10% of Americans held 93% of all stocks, the highest level ever recorded. Meanwhile, the bottom 50% of Americans held just 1% of all stocks in the third quarter of 2023.
(the vast majority of wealth for the non wealthy in the US is someone's primary residence real estate)
> The richest Americans own the vast majority of the US stock market, according to Fed data. The top 10% of Americans held 93% of all stocks, the highest level ever recorded. Meanwhile, the bottom 50% of Americans held just 1% of all stocks in the third quarter of 2023.
(the vast majority of wealth for the non wealthy in the US is someone's primary residence real estate)
In 2022, entry into the top decile required a net worth of $1.6M. My gut says folks in the top decile are over-represented here on HN.
https://www2.census.gov/library/publications/2024/demo/p70br...
https://www2.census.gov/library/publications/2024/demo/p70br...
Indeed, the vast majority of Americans have no exposure to equities, or limited exposure through a 401k or a pension. "Be a shame if something happened to these meager rows in a database we've been conning you is the path to financial independence and security. Won't you think of your crumbs?" But I digress. TLDR If the equities market implodes, it'll be mostly fine. The stock market is not the economy [1] [2]. The economy is demand for goods and services.
[1] https://www.google.com/search?q=the+stock+market+is+not+the+...
[2] https://fredblog.stlouisfed.org/2019/08/the-stock-market-is-...
(and I say this as someone with more exposure to the capital markets than most Americans, while hedging against irrationality, voting vs weighing machine and all that)
[1] https://www.google.com/search?q=the+stock+market+is+not+the+...
[2] https://fredblog.stlouisfed.org/2019/08/the-stock-market-is-...
(and I say this as someone with more exposure to the capital markets than most Americans, while hedging against irrationality, voting vs weighing machine and all that)
You have to use caution when interpreting those numbers. The bottom 50% doesn't have much wealth, so a big chunk of their wealth will decrease. It also tends to be unevenly distributed, so for those trying to improve their situation (think someone 60 years old with $50K in retirement savings), it would hit really hard. Plus a lot of those people would lose their jobs when the highest 10% cut back on spending.
If you have $50k in retirement savings at age 60, you are already broke
Turning it into $40k or $70k is unlikely to impact your life outcomes
Turning it into $40k or $70k is unlikely to impact your life outcomes
So you're saying I'm invincible!
That doesn't reflect the reality of life for those in the bottom half of the wealth distribution, and especially for those in the bottom quarter. $30K is a lot of money to them. The 30th percentile of income in the US in 2023 was under $30K. They're hoping to grow their $50K to $100K or $150K before retiring at 70.
> (the vast majority of wealth for the non wealthy in the US is someone's primary residence real estate)
But this is not solely on the top 10% to be maligned. We should force everyone to save.... even $5-10/month adds up for the least privileged over time. We force everyone to immediately pay taxes because the money would not be there year end - we should do the same for saving because it is easier than changing human behaviour.
A lack of education at most societal levels to: be taught the impacts of forgoing now for later, think long term, act long term, resist impulse to spend on consumer or ego level goods for societal "approval" or mating.
Home are the primary source of wealth for families because it is forced payment.
It is what a good parent would do - and every person needs a "parent" for some aspect of our lives (we're all bad at something).
But this is not solely on the top 10% to be maligned. We should force everyone to save.... even $5-10/month adds up for the least privileged over time. We force everyone to immediately pay taxes because the money would not be there year end - we should do the same for saving because it is easier than changing human behaviour.
A lack of education at most societal levels to: be taught the impacts of forgoing now for later, think long term, act long term, resist impulse to spend on consumer or ego level goods for societal "approval" or mating.
Home are the primary source of wealth for families because it is forced payment.
It is what a good parent would do - and every person needs a "parent" for some aspect of our lives (we're all bad at something).
60% of Americans cannot meet their basic needs on their income. They simply do not have enough income and cashflow to get exposure to the capital markets. No amount of education fixes a system structured to extract. We took pensions away saying they were unaffordable (they weren't, those contributions just go to shareholders now), took wages away through globalization and more corporate power, and then blame the human as if this was their fault. "Have you tried eating less avocado toast?"
More people crowdfunded for basic needs like food and housing in 2025, GoFundMe reports - https://www.pbs.org/newshour/nation/more-people-crowdfunded-... - December 9th, 2025
Most [bottom 60% of U.S. households] Americans don't earn enough to afford basic costs of living, analysis finds - https://news.ycombinator.com/item?id=44119317 - May 2025
More people crowdfunded for basic needs like food and housing in 2025, GoFundMe reports - https://www.pbs.org/newshour/nation/more-people-crowdfunded-... - December 9th, 2025
Most [bottom 60% of U.S. households] Americans don't earn enough to afford basic costs of living, analysis finds - https://news.ycombinator.com/item?id=44119317 - May 2025
Wholly agree...
But what is it that they can't afford? They don't have a job? Rent is too expensive?
- The above totals do not include indirect holdings-such as investments via pension funds and life-insurance companies-of which American households have some $20T.
Which is not to say it wouldn't have repercussions downhill from the gilded palaces, but - yeah, mostly wealth of the wealthy would be harmed.
Unfortunately, any market dip means jobs lost, at least temporarily.
I personally stay all-market, and long-term, so if anything it would be a buy opportunity for me.
Unfortunately, any market dip means jobs lost, at least temporarily.
I personally stay all-market, and long-term, so if anything it would be a buy opportunity for me.
This is a stat that we should take with a huge grain of salt. Poorer people indirectly own stocks through their participation in various pension schemes.
Land prices are subject to speculative bubbles as well. The only way to get rid of speculation in the real estate market is to drive the price of land down to zero by taxing it.
You also need a lot of money to purchase land, so this effectively allows banks to make a lot of money on overly inflated price of land.
Land by itself doesn't generate wealth, only improvements on top of it does. Only problem is that we tax improvement along with the land, leading to the perverse incentive that building anything increases your tax burden. We call them property tax.
You also need a lot of money to purchase land, so this effectively allows banks to make a lot of money on overly inflated price of land.
Land by itself doesn't generate wealth, only improvements on top of it does. Only problem is that we tax improvement along with the land, leading to the perverse incentive that building anything increases your tax burden. We call them property tax.
We're getting into the weeds, but the goal is usually to own your home free and clear by the time you retire, reducing your income needs from retirement to death by not having a non discretionary housing payment. The wealth in most homes cannot be tapped until sold, death, or stripping the equity (HELOC or reverse mortgage) and hoping you die with zero.
You can sort of think of a house as an I bond you can live in [1], and the return is the equity gains (historically). You need lots of money to buy land because demand outstrips supply, there is a shortage of ~4M housing units in the US, and the pipeline for building new housing was permanently impaired after the 2008 global financial crisis. We will never build as fast as we used to as we go into structural demographic labor shortages in the US; the value of existing real estate is ancient embodied construction productivity and material costs, similar to how oil is ancient sunlight.
[1] The Rate of Return on Everything, 1870–2015 - https://www.frbsf.org/wp-content/uploads/wp2017-25.pdf | https://doi.org/10.24148/wp2017-25
You can sort of think of a house as an I bond you can live in [1], and the return is the equity gains (historically). You need lots of money to buy land because demand outstrips supply, there is a shortage of ~4M housing units in the US, and the pipeline for building new housing was permanently impaired after the 2008 global financial crisis. We will never build as fast as we used to as we go into structural demographic labor shortages in the US; the value of existing real estate is ancient embodied construction productivity and material costs, similar to how oil is ancient sunlight.
[1] The Rate of Return on Everything, 1870–2015 - https://www.frbsf.org/wp-content/uploads/wp2017-25.pdf | https://doi.org/10.24148/wp2017-25
Drive down the price of land to zero via taxation and you cannot use that home to reduce your income need from retirement. It will force them to sell the property to make way for further development, since the cost of land is no longer so high that you need to borrow money from the bank to purchase land, only to pay the ongoing taxes.
Do you believe this is likely to happen? If so, when? 5 years? 10 years?
"Household wealth" is such a sneaky little phrase from the Economist to make it sounds like we're all equally exposed to this risk.
A rule of thumb suggested by one study is that every $100 drop in stock market wealth leads, on average, to a $3.20 drop in consumer spending. Under such an assumption, a dotcom-style crash would cut American consumption by about $890bn, or 2.9% of GDP.
What does "wipe out" mean? Money doesn't disappear when someone sells.
First, wealth and money are not the same. If you live in a mansion, but your bank account is zero, you can be wealthy and money-poor at the same time.
Money isn't some fixed object, like the amount of bills in circulation. It's the gross valuation of all sales, whether you trade a dollar bill or swipe a debit card or take out a small loan with a credit card tap.
And money can disappear, if something valued at $10 only sells for $9.
Money isn't some fixed object, like the amount of bills in circulation. It's the gross valuation of all sales, whether you trade a dollar bill or swipe a debit card or take out a small loan with a credit card tap.
And money can disappear, if something valued at $10 only sells for $9.
Not sure, but one example I can think of is gov bailout, if the gov just prints the money and the asset becomes worthless.
Government printing bills has literally nothing to do with the amount of wealth in the world. They don't use those physical objects to pay government debts, nor do they dole them out to stranger or "friends".
The government can generate money in the short term by changing lending rates ("the Prime"), which allows you to buy more for less interest, which encourages purchases. The long-term effect includes paying off that interest, of course, and someone still has to want to loan money at that rate; if the Prime went to zero your credit card rates still wouldn't be zero.
The government can generate money in the short term by changing lending rates ("the Prime"), which allows you to buy more for less interest, which encourages purchases. The long-term effect includes paying off that interest, of course, and someone still has to want to loan money at that rate; if the Prime went to zero your credit card rates still wouldn't be zero.
This hurts the 'middle class' the most - as they have their savings locked up in growth stocks like AI.
Costs to the elderly would be socialized (we'd pay for medicare for more people); the youngest don't own stocks.
But you can imagine seeing knock on effects in housing prices, and massive increases in credit defaults as people who bought things thinking their portfolio was worth X, all of a sudden can't afford them when their portfolio is worth .5x
It's going to be bad when it happens - think DotCom crash. But if then crypto and other asset classes crash on top of that, you could have a real crisis.
Costs to the elderly would be socialized (we'd pay for medicare for more people); the youngest don't own stocks.
But you can imagine seeing knock on effects in housing prices, and massive increases in credit defaults as people who bought things thinking their portfolio was worth X, all of a sudden can't afford them when their portfolio is worth .5x
It's going to be bad when it happens - think DotCom crash. But if then crypto and other asset classes crash on top of that, you could have a real crisis.
The rich will be deemed too big to fail somehow and will be bailed out somehow.
We will leave the bill for some teacher pension fund in Minnesota.
We will leave the bill for some teacher pension fund in Minnesota.
Tesla is currently sitting near a $1.5T valuation with $1.47 earnings per share based entirely on AI vaporware. The adjustment to reality cannot come soon enough.
Vaporware like this? https://youtu.be/3DWz1TD-VZg?t=111
Yes, fulfilling regulatory requirements are part of shipping a product.
Full self driving next year!
Full self driving next year!
Full self driving next year!
Full self driving next year!
Full self driving next year!
I find the relationship of the general public with company ownership fascinating.
1) Can just pick and choose buying parts of the best, most well functioning companies without having to figure out anything or do anything, what a life.
2) Kinda hate on people who run those companies
3) Also kinda hate on big companies in general
4) Owning stocks is somewhat cool though. Unless it's not, then it's destruction of wealth.
1) Can just pick and choose buying parts of the best, most well functioning companies without having to figure out anything or do anything, what a life.
2) Kinda hate on people who run those companies
3) Also kinda hate on big companies in general
4) Owning stocks is somewhat cool though. Unless it's not, then it's destruction of wealth.
Are there any tools to take your existing porfolio and play out scenarios like this? Eg positions in 100+ stocks aggregated from 401k, Roth, 529, etc and see best guesses as to how I'm exposed?
Portfoliovisualizer.com but I’ll save you some time it won’t be pretty.
Just make a truly diverse portfolio and never worry. Lots of efficient portfolios explored here.
https://portfoliocharts.com/2021/12/16/three-secret-ingredie...
Just make a truly diverse portfolio and never worry. Lots of efficient portfolios explored here.
https://portfoliocharts.com/2021/12/16/three-secret-ingredie...
Thanks!
Stock market crash? I believe less and less a 1929 style crash is possible. Tesla, Uber, hell, look at GameStop still... The market is rigged. The US and the upper class needs numbers go up, the numbers will go up.
The only way an adjustment to such stock prices would come is if US power and dollar vanes. There is a chance now this will happen, but I guess it will still take a long time.
The only way an adjustment to such stock prices would come is if US power and dollar vanes. There is a chance now this will happen, but I guess it will still take a long time.
That doesn't seem plausible to me, though not because I don't think the upper class would be above such behaviour. If investors try to prop up the price of a company, they'll end up buying more over-priced shares and potentially losing far more money in the long-term, so it's probably only worthwhile if they believe that it's just a short-term blip. Also, the investors that don't believe that it's a sensible long-term bet will be offloading their shares to the people who are willing to pay top price for them, so someone is going to end up holding a lot of expensive stock that's not performing.
> The US and the upper class needs numbers go up, the numbers will go up.
You don't think anyone had ever tried that prior to past crashes?
You don't think anyone had ever tried that prior to past crashes?
Maybe they were just bad at it and didn't get enough buy-in.
The economy will recover quickly until it doesn’t. We haven’t had a depression in almost 100 years, we might be due one.
As long as potential feels bigger than reality, investors keep pouring in.
Case in point: The dot-com crash came only after the web matured and reality finally hit the limits of its potential.
By that logic, an AI crash would likely come only once AGI arrives and the true boundaries of its impact become visible. Or, the progress towards AGI seems to stall.
Case in point: The dot-com crash came only after the web matured and reality finally hit the limits of its potential.
By that logic, an AI crash would likely come only once AGI arrives and the true boundaries of its impact become visible. Or, the progress towards AGI seems to stall.
Some of this analysis seems a bit lazy for the Economist.
Apple is in the "AI-related companies in the SP500" group? Microsoft too? Tesla too? Amazon too? But... if these companies' AI efforts fail, 95%+ of their revenues would be unaffected. So big stretch to paint them with that brush.
Nvidia, OK that one is obvious. Meta, Alphabet, OK.
But MOST of the companies listed in that chart are only "AI companies" in the sense that EVERY tech company building peripheral AI into their products is an AI company.
Case in point: if Apple stock goes 'on sale' as part of an AI-bubble sell-off, are you really deciding whether or not to buy based on their AI-ness?
Apple is in the "AI-related companies in the SP500" group? Microsoft too? Tesla too? Amazon too? But... if these companies' AI efforts fail, 95%+ of their revenues would be unaffected. So big stretch to paint them with that brush.
Nvidia, OK that one is obvious. Meta, Alphabet, OK.
But MOST of the companies listed in that chart are only "AI companies" in the sense that EVERY tech company building peripheral AI into their products is an AI company.
Case in point: if Apple stock goes 'on sale' as part of an AI-bubble sell-off, are you really deciding whether or not to buy based on their AI-ness?
Maybe. It's hard to say for sure.
Tesla for example: its stock price has fluctuated down 50%, then up 100% (relative to the dip), in this year alone. Clearly, that's market speculation, not capital + earnings. So how much of that speculation is AI-dependent? Depends on how much coffee investors drink before reading Musk's latest tweets, I guess.
Apple is HEAVILY invested in AI, but you're right: it's earnings are dependent more on iPads than AI right now.
> ...are you really deciding whether or not to buy based on their AI-ness?
Buy APL stock, or buy an iPhone?
Tesla for example: its stock price has fluctuated down 50%, then up 100% (relative to the dip), in this year alone. Clearly, that's market speculation, not capital + earnings. So how much of that speculation is AI-dependent? Depends on how much coffee investors drink before reading Musk's latest tweets, I guess.
Apple is HEAVILY invested in AI, but you're right: it's earnings are dependent more on iPads than AI right now.
> ...are you really deciding whether or not to buy based on their AI-ness?
Buy APL stock, or buy an iPhone?
Why does it matter? Government learned during covid they can spend there way out of a crash.
But since then the other countries learned that the US government could weaponize their USD holdings if they don't align. Central banks started accumulating gold to counter this.
Also, debt market is not the same as it was 5 years ago, Japan now has inflation (and they hold the biggest bag of US debt).
To add to this, USD lost 10% of its value this 2025 according to the DXY index. To be fair, it pretty much went to what it was worth before 2022, but the Fed has to be careful anyway.
Many things happened since 2020. It's almost 2026.
Also, debt market is not the same as it was 5 years ago, Japan now has inflation (and they hold the biggest bag of US debt).
To add to this, USD lost 10% of its value this 2025 according to the DXY index. To be fair, it pretty much went to what it was worth before 2022, but the Fed has to be careful anyway.
Many things happened since 2020. It's almost 2026.
Wow, you weren't kidding. My impression of the market is outdated!
Japan is facing real inflation in the last 3 years, at rates not seen since the 1990s. https://www.statista.com/statistics/270095/inflation-rate-in...
However, it only owns 3% of US debt; they are the largest non-US holder, but still a marginal holder. Basically, they deseated China for that spot of "Biggest But Still Small US 'Lender'". Both together are dwarfed by pensions, 401ks, and other US buyers and institutions. https://www.visualcapitalist.com/charted-heres-who-owns-u-s-...
Japan is facing real inflation in the last 3 years, at rates not seen since the 1990s. https://www.statista.com/statistics/270095/inflation-rate-in...
However, it only owns 3% of US debt; they are the largest non-US holder, but still a marginal holder. Basically, they deseated China for that spot of "Biggest But Still Small US 'Lender'". Both together are dwarfed by pensions, 401ks, and other US buyers and institutions. https://www.visualcapitalist.com/charted-heres-who-owns-u-s-...
Oh I agree with you. But my point was it won’t stop them from trying damned the consequences.
...and in 2008. sadly, it might actually work:
https://bipartisanpolicy.org/article/the-deficit-in-a-downtu...
https://www.frbsf.org/research-and-insights/publications/eco...
The hard part is reigning that spending in during non-crash years (see the uproar over removing the temporary COVID subsidies) in a way that is not political suicide. At the Federal level, there is zero incentive to not run a deficit.
https://bipartisanpolicy.org/article/the-deficit-in-a-downtu...
https://www.frbsf.org/research-and-insights/publications/eco...
The hard part is reigning that spending in during non-crash years (see the uproar over removing the temporary COVID subsidies) in a way that is not political suicide. At the Federal level, there is zero incentive to not run a deficit.
I'm hopeful that the AI bubble popping would bring back money flowing to other industries. If you're not an AI company right now it takes a lot to get investor cash flowing in.
This is real.
I have a buddy who has been an entrepeneur all his life. He renamed his first company to Name-Dot-Com just before the Dot-Com Crash; a short jump in investment followed by a period where he couldn't get his calls returned, and he was forced to sell.
So my point is: "angel investors" in startups seem to be a really "ADHD", shiny-distraction-oriented bunch. And that has a huge impact for smaller companies.
I have a buddy who has been an entrepeneur all his life. He renamed his first company to Name-Dot-Com just before the Dot-Com Crash; a short jump in investment followed by a period where he couldn't get his calls returned, and he was forced to sell.
So my point is: "angel investors" in startups seem to be a really "ADHD", shiny-distraction-oriented bunch. And that has a huge impact for smaller companies.
Counter argument: https://www.nytimes.com/2025/12/09/business/wall-street-valu...
Excerpts:
In the 1990s and early 2000s, many of the companies leading the stock rally were not making much money, if any. This led to very high P/E ratios for some companies because share prices kept going higher, even when earnings were lagging well behind.
While Nvidia’s stock price has risen roughly 1,000 percent over the past three years, from $17 to $180, its earnings — the actual money it is making — have increased even faster. This means the stock is arguably cheaper today than it was three years ago, said Stacy Rasgon, a stock analyst at AB Bernstein.
Excerpts:
In the 1990s and early 2000s, many of the companies leading the stock rally were not making much money, if any. This led to very high P/E ratios for some companies because share prices kept going higher, even when earnings were lagging well behind.
While Nvidia’s stock price has risen roughly 1,000 percent over the past three years, from $17 to $180, its earnings — the actual money it is making — have increased even faster. This means the stock is arguably cheaper today than it was three years ago, said Stacy Rasgon, a stock analyst at AB Bernstein.
But the circular financing throws those earnings into doubt. There's no question that Nvidia makes fantastic products, but right now a lot of its customers are buying those products using borrowed money, or money invested in them by Nvidia itself. Its highly questionable whether those earnings are sustainable.
In the case of nvidia, the price is based on expectations of future revenue, not current. And the future numbers are clouded by a web of opaque circular deals with customers.
That is how it seems, yes.
But Nvidia also has some less than transparent arrangements to support their customers in buying their goodies.
Which is not to say they aren't making money, it's more that in hindsight we may discover that the p/e ratios were not the primary measure we should have paid attention to...
But Nvidia also has some less than transparent arrangements to support their customers in buying their goodies.
Which is not to say they aren't making money, it's more that in hindsight we may discover that the p/e ratios were not the primary measure we should have paid attention to...
Nvidia is selling shovels, widely believed to be a better business than panning for gold. So...
* You can't generalize from Nvidia to companies spending all the money on hardware, electricity, and labor without making a profit.
* It's also worth asking if Nvidia will keep having those earnings if all the AI companies crash. Unsure about this. At least there's a bunch of pent-up demand from people wanting GPUs for other reasons.
* Also, there's the $100B they invested in OpenAI...
* You can't generalize from Nvidia to companies spending all the money on hardware, electricity, and labor without making a profit.
* It's also worth asking if Nvidia will keep having those earnings if all the AI companies crash. Unsure about this. At least there's a bunch of pent-up demand from people wanting GPUs for other reasons.
* Also, there's the $100B they invested in OpenAI...
I'm just waiting for the next massive knee jerk reaction in the stock market to start seriously investing again. AI is not going anywhere even if there is a bubble but people are going to make stupid narratives on it being over for Nvidia and tech.
Time in the market >> timing the market. You’re statistically not better off waiting although ai understand the feeling.
I think the real issue comes down to how these companies are being valued. As the article points out, "the top 20 firms account for 52%, with the same number deeply invested in AI." This concentration makes the market more vulnerable to any major setback in AI's growth. But the question remains: Are these valuations justified?
As I mentioned in earlier writing [1][2], many AI stocks are priced assuming the tech will deliver far more immediate and consistent returns than history suggests. These speculative assumptions are similar to the dotcom era, where companies like Yahoo and Pets.com were valued based on hype/expectation rather than fundamentals. If AI doesn't live up to the hype, the consequences could be even worse today imo, given how much more of American wealth is tied up in stocks.
Edit: Just read a related WSJ [3] article.
[1] https://pdub.click/2511242 [2] https://pdub.click/251210e [3] https://www.wsj.com/personal-finance/the-everyday-investors-...
Edit: Just read a related WSJ [3] article.
[1] https://pdub.click/2511242 [2] https://pdub.click/251210e [3] https://www.wsj.com/personal-finance/the-everyday-investors-...
I like the correction, specifically how it ends with "sorry."
Just electronic signals, not true wealth.
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Im sure the wealthy find a way to socialize these “losses”.
Also what a shit headline. There’s no wealth destroyed, it’s all just numbers go up and down. But until you sell you haven’t lost any money, have you?
Also what a shit headline. There’s no wealth destroyed, it’s all just numbers go up and down. But until you sell you haven’t lost any money, have you?
But truly, is not red in the brokerage accounts of the wealthy the greatest social ill of our time?
Without buying and selling, there is no change in price. Obviously, wealth will therefore be destroyed - just not that of buy-and-hold people.
I have no sympathy for the uber-wealthy, but claiming no one's wealth will be affected is ridiculous.
I have no sympathy for the uber-wealthy, but claiming no one's wealth will be affected is ridiculous.
The way I think about it is that it'll affect those most that are the most greedy, those that are exposed to the most risky "products". If your wealth is in bonds or something else boring, won't this be a non event?
I'm not convinced it's not someone in the background choosing wrong (greed) that's the problem.
I'm not convinced it's not someone in the background choosing wrong (greed) that's the problem.
Maybe a distinction without a difference. If my "numbers go down" it follows that so does my spending, investing, etc.
You're right. I guess it depends on many variables. If you're income depends on dividends and gradually selling offs of your portfolio, I can see now how that would affect my behavior. Same with being someone close to retirement but then, financial planning should have pulled out high volatile stocks from a portfolio that needs to get converted to cash shortly.
If you're a normal person, planning on buying and holding broad market ETFs for the next 20 years, we're just gonna ride it out, right? Right?
If you're a normal person, planning on buying and holding broad market ETFs for the next 20 years, we're just gonna ride it out, right? Right?