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In just 18 months, over $3.3 trillion
has flooded into AI link companies.
That's more than the entire market cap
of Germany. Today, five AI adjacent
companies alone represent over 30% of
the entire S&P 500. That is the highest
concentration of market power in modern
financial history. Since 2023, Nvidia
alone has added more market cap than the
combined GDP of South Korea, Sweden, and
Switzerland. And yet on November 20th of
2025, Nvidia posted $57 billion in
quarterly revenue, beating expectation
by billions. And yet, the stock still
fell, dropping the entire S&P 500 with
it. Last quarter, AI link stocks wiped
out $400 billion in gains in a single
trading session, the fastest reversal
since the dot crash. And while AI
investment has exploded by 800%, US
productivity has barely budged, up just
about 1.3% total in two years. The truth
is AI has given us the biggest
technological hype wave since the dotcom
boom. And the narrative is that it's
going to last forever. But is it? Even
when Nvidia reports flawless numbers,
the kind that most companies could only
dream of, the stock still falls at times
wiping out hundreds of billions of
dollars in value in just a matter of
hours. Now, this video is not about
predicting a crash, but it is about
something incredibly important. How to
make sense of a world where 10 stocks
that are totally detached from
fundamentals account for all the value
in the market and have a tendency to
whipssaw up and down. Listen, the AI
boom is real, but so is the AI bubble
forming around it. We're going to cover
exactly what's driving the market right
now because it sure as hell isn't
fundamentals and how to navigate a
market with such extreme and costly mood
swings. I've got a go forward plan as
always for you in part four, but it's
not going to make sense unless you
understand the detailed warning in part
three. So, welcome to part one, the
reflexive loop. How AI hype creates its
own gravity. Between 1998 and 2000, the
NASDAQ jumped 278%
not because of earnings, but because
rising prices convinced investors that
rising prices were the new fundamentals.
The average dot stock tripled in the 6
months before the crash, even though
actual revenue growth across the sector
was less than 10%. In 1999, 80% of all
IPOs were issued by companies with zero
profits and the system was poised for a
fall. By March of 2000, despite being
the most valuable company in the world,
Cisco dropped by 86% when belief in a
forever up market finally collapsed. If
you want to understand what's happening
in the market right now, the wild
volatility and sense that the surface
level story just does not match the
underlying reality of what is really
moving the markets, you have to
understand one of the most important
ideas ever introduced in finance. George
Soros's theory of reflexivity.
It's not a technical theory, but it is
highly predictive. Once you see it,
you're not going to be able to unsee it.
Reflexivity says that markets are not
passive observers of reality. They do
not simply measure what's happening out
in the world and then adjust
accordingly. Markets instead shape the
very reality they appear to be
responding to. Most people imagine the
stock market as a kind of barometer,
something that reacts to pressure
systems, earnings, GDP, interest rates,
consumer spending, etc. But in reality,
that's not how it actually works in real
life. Markets behave much more like a
thermostat. They don't merely respond to
the environment. They influence it. And
this creates a feedback loop between
belief and behavior. And it's inside
that loop that bubbles form. Liquidity
rises. Money sloshes around in the
system chasing returns. Prices rise in
response. People get really excited.
They convince themselves and others that
this time it's different. It's never
different. And then prices completely
detach from business fundamentals and
start responding more to supply, demand,
and belief. And as such, bubbles
inflate. Here's how this plays out in AI
and what we're living through right now.
Given the vast deficit spending and
resulting need to print money combined
with relatively low interest rates and
easy money has flooded the system that
has driven prices up across essentially
all asset classes. As prices rise, so do
expectations.
Someone posts an LLM breakthrough
online, a new investing meta explodes
online in response and gets endlessly
covered on social media. A CEO hits a
podcast and says the world is about to
be rewritten and overnight
the belief that AI is inevitable
translates into more money flooding into
a small number of stocks. That belief
pulls in fresh capital because nobody
wants to miss the next epic defining
technology. That new capital drives
valuations even higher. And those higher
valuations act as proof that AI
bullishness is entirely justified. If
the prices are screaming upward, surely
the underlying technology must warrant
it. So, people invest even more
aggressively, further pushing prices
even higher, which further reinforces
the narrative. And on and on it goes in
a self-reinforcing loop. And there's
another element. There's actual money to
be made. Even if the stocks are totally
detached from business fundamentals, you
don't make money in the stock market
because of fundamentals. You make money
in stock markets because you bet
correctly on the direction and timeline
of a stock or segments of the market
whether up or down. It is a truly
self-reinforcing cycle of belief
bringing in capital which increases
valuations which leads to a stronger
belief in the thesis which then brings
in even more capital. This is
reflexivity in motion and AI is the most
recent asset class to benefit from the
volatility that it creates. Remember,
volatility is desired by active traders.
They can make money on moves up and
moves down. The only thing they can't
make money on is stability. Once you
realize that, you realize why gambling
is the right framework through which to
understand the markets. In all honesty,
right now AI isn't really a product.
It's a story about the future that
people can gamble on. It is a promise
that everything is about to change and
AI companies will be the beneficiaries
of this moment. It's a technological
vision so sweeping, so totalizing, so
intoxicating that it bypasses normal
financial skepticism in the same way
that the internet did back in the leadup
to the 2000.com bubble bursting. And
when you have a technology that carries
that kind of mythic weight, the belief
alone is enough to move trillions of
dollars up and down, sometimes on the
same day. Nowhere is that more obvious
than with Nvidia. Nvidia is no longer
being priced like a traditional company.
It stepped into the reflexive center of
the AI narrative, the same way Cisco did
during the.com boom. Investors aren't
valuing Nvidia based on last quarter's
earnings or next quarter's guidance.
They're valuing it based on the future
the public is willing to bet will
eventually exist. In many ways, Nvidia
has become the physical embodiment of
AI's inevitability. And the wisdom of
investing in picks and shovels rather
than gold itself. This means its stock
price is no longer a measure of what the
company is today or even necessarily
what it's going to be tomorrow. And
instead, it's become a measure of what
investors imagine the next decade of
human progress will look like. And
that's why even perfection isn't enough
anymore to keep prices moving up.
Investing is a player versus player
versus environment game. It is combative
and winner take all when people are
betting on specific stocks and regional
moves. So Nvidia can deliver a quarter
with 57
billion dollar in revenue. It can even
beat expectations by billions as it just
did. It can even post numbers that no
mega cap in history has come remotely
close to matching and the stock can
still fall violently, instantly and
infalling. it can drag the entire market
down with it. It's not a commentary on
Nvidia. It's a commentary on the nature
of a PVPVE game with reflexivity at its
core. When an asset becomes the
gravitational center of a belief system
and a way to profit off of people's much
discussed belief in the future, it will
inevitably stop responding to business
fundamentals and start responding to
narrative tension because it's pulling
so much of the perceived value of the
future into the present. There's only so
much future you can believe in. Whenever
the story wobbles even slightly, the
price is going to react dramatically. It
doesn't matter what the numbers say. It
matters how people feel about what the
numbers imply. Every piece of news, no
matter how objectively good, can still
potentially be interpreted through the
lens of expectation oversaturation. This
is exactly what we're seeing right now
and exactly what latestage reflexive
cycles look like. Good news that doesn't
lift prices at all. bad news that
punishes disproportionately
and/or a whipssaw of up and then right
back down with a creeping sense that
belief has climbed higher than reality
can justify. It is critical to
understand this feedback loop because
reflexive bubbles don't collapse when
the fundamentals break. Obviously, they
collapse when people's belief in the
only up phenomenon collapses. Reading
the book 1929 about the stock market
crash that led to the great depression
has been extremely eye-opening. It just
really drives home the point that the
crash itself is not the key to
understanding the great depression. You
have to understand what led to the
crash. the insane borrowing, the
euphoria, the absolute detachment from
business fundamentals, the market
manipulation on behalf of the hyper
sophisticated traders that prey on
others ignorance. It's wild and there
are just too many similarities to every
massive market runup in modern history
to ignore. We all want to believe that
the stock market is about business
fundamentals, but honestly, fundamentals
are for the slow times. Once a market
heats up, it's a totally different
animal. It's reflexivity. Once you
understand what reflexivity is, you see
the danger. You see that there's a gap
between what's real and what's driving
asset prices and how fragile that makes
the system as a whole. We'll get back to
the show in just a second. But first,
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Now, let's get back to the show. So,
welcome to part two, the AI reality gap.
Productivity just isn't matching prices.
According to a 2025 startup trends
report, AI has captured 64%
of VC funding in the US. But a full 70%
of these companies have yet to earn a
dime in revenue. Even companies like
OpenAI lost $5 billion in 2024 despite
billions of dollars in revenue. MIT's
2025 report notes 95%
of Gen AI pilots fail to positively
impact companies P&Ls due to escalating
costs and poor integration, indicating
that costs currently dwarf benefits.
Media mentions of AI in a financial
context went from approximately 500 in
Q1 of 2022 to over 30,000 by Q3 of 2023.
That's an increase of roughly 6,000%.
Trading multiples on revenue, typically
stated as enterprise value to revenue
ratio, is way higher than normal. Like
way higher. Traditional SAS companies
ring in at about 6x. AI as a sector is
clocking in at roughly 30x with outliers
like XAI ringing in at a staggering
150x. That's the equivalent of banking
on
150 years worth of revenue at today's
rates. That is wild. If you're not used
to these numbers, it may not register
just how insane that is, but it's
insane. It's like paying 30 years salary
for an engagement ring instead of 3
months. Your wife would have to be
Elon's daughter and guaranteed to be in
the will for it to be worth that. AI
investment is now growing faster than
any technology in human history. And yet
the one metric that actually tells us
whether society is getting more
efficient, productivity, is growing
modestly at best. If you strip away the
hype, the demos, the runaway valuations,
and the endless parade of breathless
headlines, the only thing that's left is
economic transformation. And that just
hasn't happened yet. But we're seeing
sky-high valuations nonetheless, as if
the transformation had already taken
place. Asset markets are future
prediction machines. They are the poly
market of stocks. That frame of
reference makes it clear why markets are
racing so far ahead of the reality. Now
listen, I am not saying the AI isn't
real. I'm like the biggest AI booster
ever. I believe that on a long enough
timeline, it will be just as
transformational as a 150x valuation
would have you believe. However, when
you look at hype cycles, the hype tends
to wear off faster than the reality
arrives. And if the gap is too large and
too speculative, early promise in a
sector becomes a bunch of toxic bets
that weaken the system as a whole.
The.com bubble obviously did not mean
that the internet wasn't going to be
utterly transformational. It clearly
was. But I'll let you guess if that's
comforting to the people who went broke
betting on pets.com. What if I'm wrong
is always in the back of people's minds.
And when that uncertainty reaches a
breaking point, confidence falters and
prices correct violently regardless of
where the industry ends up going on a
longer timeline. And that's even if
there are fundamentals. What happens
when there's not even that? Whoa, Nelly.
Hold on to your hat. You can wake up and
realize not only are you not in Kansas
anymore, you're not even on planet
Earth. Consider this. There is massive
societal turbulence between our current
150x valuations on X AI and AI actually
delivering on its promises. If AI does
what everyone expects it to do, what
happens to society itself? If AI
delivers on a tenth of its promises,
it's going to disrupt the labor force
more than the pandemic. And it's not
going to just be blue collar jobs that
get affected. Having a job where people
can work from home is not going to save
people this time. We are in this weird
position where if AI actually ends up
having the capabilities that people have
already priced in, it's going to cost
millions of people their jobs just in
the US. The global displacement could be
measured in the tens of millions or even
more. Will people be able to afford
shares? Will shares still even matter?
And with all that looming, we've pulled
forward 150 years worth of today's
revenue. And even if you set that
terrifying question aside for a second,
a startling percentage of AI startups
aren't even really tech companies.
They're thin wrappers around the same
four foundational models. They don't
have moes. They don't have margins. They
don't even have proprietary data. Their
business model, if you can call it that,
relies on reselling someone else's
compute inensive model with a prettier
skin on top. But despite that, many of
them are getting outsized valuations in
the market. Then you have the cost side,
which is the part most people wildly
underestimate. AI is incredibly
expensive to train, deploy, and run. And
because of that, much of the
productivity gains they deliver are
being swallowed by compute costs,
inference costs, retraining costs, and
the engineering talent required to keep
everything from falling apart. It is no
exaggeration to say that AI is the
single most expensive productivity tool
ever attempted. which is exactly why
Open AI and others are losing money
handoverfist and why Sam Alman went to
the government hoping for a backs stop.
But the market has already priced in all
of these problems getting solved. That
means there's a lot of ways that things
could go wrong, but only one for things
to go right. AI has to outperform
everyone's already sky-high
expectations. The catch is the gap
between the world people are betting on
and the world we actually live in is
massive. And when expectations grow
faster than reality can deliver, the
tension becomes dangerous. As all it has
to do is knock people's confidence hard
enough to trigger a psychological
contagion that causes buyers to
evaporate. Nothing bad actually has to
happen to a business. People just have
to lose faith. And we've seen this movie
before more than once. Housing in 2008
and the already mentioned parallel of
the dotcom bubble are two recent
examples. Perfect companies became
casualties when the narrative failed to
overcome the math. The AI boom is real,
but how much higher can valuations go
before people lose faith in a future
that's just too far away? Every bubble
starts with the same early signs. A
concentration of belief in a small
handful of companies. expectations that
blow through the ceiling. A market that
stops pricing risk and starts acting
like success is inevitable. And we can
see those same specifics playing out
again crystal clear with AI. And then
you always get a signal, a moment where
something objectively good happens, but
the market still reacts negatively.
That's the tell. It's the crack in the
ice before you fall through and get a
cold, expensive dose of reality.
Nvidia's recent perfect earnings equal
quick rise and fall right back down is
that signal doesn't mean Nvidia is
doomed, but it does mean the market is
starting to get shaky. With valuations
this detached from fundamentals, people
are starting to get tempted to remember
that saying one day AI is going to be
huge is not the same as getting the
timing and the specific picks right. And
getting the specifics wrong or the
timing wrong is the same as being wrong.
Now, the point of all of this is not to
panic. The point is to understand what
really drives valuations if it's not
business success. Reflexivity is not the
only factor that explains why
trillionoll companies are now swinging
like small caps. And that brings us to
part three. What's the real cause of the
AI bubble? In 2024 alone, global
liquidity increased by over six trillion
dollars. And historically, every major
bubble from Japan in the 80s to do in
2000 formed in liquidity waves just like
this one. In 2023, the average borrowing
rate to trade on margin at major
brokerages was about 5 to 6%. But the
S&P 500 was returning 26.3%.
And that is exactly why people have been
shoveling money into the market and why
margin debt has hit $1.1 trillion for
the first time in history. Asset prices
now have two inflationary pressures on
them. First by the Fed printing money
and second by margin purchases creating
more demand as well. It's an insane
double whammy as people chase a return
from AI stocks that are already priced
decades into the future. In the last
year alone, daily trading volumes in the
AI mega caps have eclipsed the combined
trading volume of the entire stock
market of most G20 nations. This is
speculation gone mad. If reflexivity
goes a long way towards explaining the
psychology driving the AI bubble, fiscal
dominance is needed to understand why
the adults are never coming home and why
the bubble cannot be slowly deflated.
This is the part people really don't
want to look at, least of all me,
because this is straight black pill. But
if we don't contend with the structural
reality of what's happening, we will
never be able to protect ourselves from
the potential fallout. Right now, there
is simply too much liquidity slloshing
around the system for how hot the
economy already is. And that liquidity
has to go somewhere. It will not just
sit still. It will always aggressively
seek a return. That's what people do.
And when the dollar is losing
international credibility at the same
time that it's being inflated through
debt, deficit spending, and
everinccreasing amounts of money
printing, it certainly can't park in
cash. It also can't flow into bonds when
yields are barely keeping pace with
inflation. This part is so important. In
an environment like this one, capital
becomes a heat seeeking missile
targeting the biggest return it can
find. And as discussed earlier, that
return is far more likely to be
predicated on narrative rather than
business fundamentals. So whatever
narrative promises the highest future
return is going to get that money. And
right now all eyes are on the bell of
the ball AI. In a sane environment,
without all of the debts, deficits, and
margin dollars, we wouldn't be in this
position. We would have long ago raised
rates. Dear Fed, I'm talking to you.
Yes, raised rates. That would have
slowed everything down. More people
would opt for the risk-free rate of
return, and money would be too expensive
for so much margin trading, which would
deflate the prices. We might still be in
a bubble, but I very much doubt we'd be
in a 150x bubble like we are now.
Interest rates should be acting like
breaks on the market. As borrowing money
gets expensive, people do less of it and
that decreases liquidity, slowing the
economy and cooling speculation because
money wouldn't have to go so far out on
the risk curve to get a reasonable
return. But because of fiscal dominance,
raising rates is structurally impossible
at the moment. So the question is, what
exactly is fiscal dominance? Fiscal
dominance is when the government's debt
burden has grown so large that the
Federal Reserve can no longer raise
interest rates without making it
impossible for the government to make
its interest payments without turning
the money printer on full blast, which
would run the risk of eventually
hyperinflating the currency. The money
stays cheap, the market runs riot,
bubbles form, and there's no way to
slowly deflate them. The Fed wants to
raise rates. It knows it should raise
rates. And yet, it lowers them as slowly
as possible, but it lowers them
nonetheless. More money floods the
system, pushing asset prices even
further while making the dollar worth
less and less with every dollar printed.
If you own assets, life is good until
the music stops and the bubble bursts.
And if you don't own assets, you're
having a harder and harder time making
ends meet with each passing day. And the
Fed is stuck holding rates somewhere
between too high for politicians to be
happy, which is why you're seeing the
pressure, and too low to force the
market to be disciplined. This is a
classic debt spiral, and we're already
trapped in it. But don't worry, no one
seems to care. And if we ignore the
problem, it's likely to go away, right?
Right. Well, actually, sort of. When the
system has this much cheap liquidity,
chasing this much future price optimism,
and there are no adults in the room with
the ability to cool things off, the
problem will eventually fix itself. When
when the bubble bursts and prices slam
back to Earth, the only way to avoid
that result is for AI to deliver on its
promise without somehow gutting the
labor force. And that is a
contradiction. For AI to deliver on his
promise, it has to drive energy costs
and labor costs to near zero. That would
truly be a spectacular world of
abundance. There would be an immense
amount of disruption on the way to that
future. Lord knows the easiest way to
look stupid is to try and predict the
future. But when I look at how the
market is riding on the back of roughly
10 stocks and even spectacularly good
news fails to rally a stock for any
meaningful period of time and it all
feels very precarious, especially
through the lens of history. Under
normal conditions, markets rise on
fundamental growth and fall on
fundamental weakness. But that's not
what's happening right now. And here's
the truly dangerous part. This isn't
happening because people think AI is a
scam. It's happening because people
believe AI is real, but they don't
believe these valuations are
sustainable. Most traders, however,
believe that they're smarter than the
average bear and that they're going to
get out just in the right time, despite
the fact that famous investors like
Michael Bur of the big short fame just
liquidated his entire hedge fund and
gave the money back to his investors
because he no longer believes he can
understand this market. It's so out of
whack. And how could he understand it?
How could anyone? It's not mathing right
now. It's not even just the hype. It's
the macroeconomic trap of fiscal
dominance creating sustained cheap
money, plus an addiction to debt,
deficits, and gambling on margin. All
mixed together with a once- in a
generation narrative that has some
believing that this time really is
different. And all of that means that
navigating this moment requires a very
different strategy than simply buy the
winners and hold. Bur's out, Buffett
sitting on cash, and Dallio sees a tale
of two economies racing away from each
other towards open conflict. All while
anxieties climb over what artificial
general intelligence could mean for
society, let alone the dangers of super
intelligence. Put it all together and
you've got a balloon balancing on the
head of a pin. The slightest downward
pressure and bang, it pops. And that's
why par4 is so important. The people who
made it through the.com bubble did not
just believe in the internet's future.
They understood the structure of the
market they were doing battle with and
they adjusted accordingly. We'll get
back to the show in a moment, but first
here is the brutal truth about scaling.
Most entrepreneurs don't outright fail,
they plateau. And if you're stuck right
now, you know how true that is. It could
be that your revenue flatlines every
time you step away. Or maybe you're
trapped in a commodity market that's
racing to the bottom. Or maybe you're
one of the lucky people who is
navigating a very complex partner
dynamic that turns every decision into a
battle. These problems and a whole lot
more can seem impossible until you break
them all down into first principles. My
partners and I use this thinking to grow
Quest Nutrition by 57,000%
in our first three years alone and scale
to a billion-dollar exit. And now I'm
teaching this framework to a select
group of entrepreneurs who are ready to
scale. Now, I want to be clear. This is
not for everybody because I'm looking to
work with serious entrepreneurs that
already have an established business and
a proven track record of execution. If
that's you and you want to learn how to
break through your biggest business
bottlenecks using first principles
thinking, be sure to apply now. Just go
to impact theory.com/scale
or click the link in the show notes.
Again, that's impact theory.com/scale.
Now, back to the show. So, welcome to
part four. What the.com bubble tells us
is the path forward. At the peak of
the.com bubble, investors poured money
into over 4,700 internet companies. In
the year 2000, however, the NASDAQ
didn't just pull back. It plummeted by
nearly 80%, wiping out over $5 trillion
of market value and taking thousands of
can't lose tech stories with it.
Pets.com went from IPO to liquidation in
days. That's how fast a beloved brand
with a Super Bowl commercial can go to
zero when there is a ton of narrative
but no real business. At one point, even
Amazon had lost roughly 95% of its
value. If you had bought the NASDAQ at
the peak in March of 2000, you had to
wait 15 years just to get back to even.
The investors who bet everything on the
hot names in 1999 mostly disappeared.
But the investors who focused on real
revenue, real infrastructure, and real
diversification are the ones who today
on a huge chunk of the modern world and
have the wealth to prove it. Amazon, for
instance, had a real business, so it was
able to weather the storm. And then it
went on to become one of the biggest
companies in the world. and its stock
price went up by roughly, drum roll
please, 100,000%.
A full two decades after the boom, a
handful of internet companies like
Amazon, Google, and eBay, they still
remain relevant, proving that if you
look beyond the hype, there are often
real businesses available to invest in.
But assuming you know who's who early on
is a very dangerous game, there's much
we can learn about today from the.com
bubble. If we zoom out, it is the only
other tech mania in human history that
really rhymes with what we're living
through right now in AI. Same belief
that we are stepping into a new age.
Same sense that if you're not allin on
this, you're going to be left behind.
The difference between the people who
got vaporized and the people who came
out the other side with lifechanging
wealth wasn't who believed in the
internet. Almost everyone believed. The
difference was how they invested through
the mania. That's what we're going to
walk through right now. The five pillars
that would have helped during the dot
bubble and that will almost certainly
help us now. Pillar one, be humble when
placing your bets. In 1999, the smartest
people in the room were absolutely
certain they knew who the winners were
going to be. AOL was going to own the
internet forever. Yahoo was the
operating system for the web. Pets.com,
etosy, web van, those were the can'tmiss
category killers. Amazon was just a joke
to most traditional investors, just a
moneylosing online bookstore. Cisco,
however, was so dominant, people were
seriously saying it would be the world's
first trillion dollar company at a time
where that was wild, they did not think
they were guessing. They were convinced
they were right. But here's how it
actually played out. AOL collapsed 98%
after the Time Warner merger and became
a punchline. Yahoo lost 96% of its value
and never recovered its former
relevance. Pets.com, Web Van, Cosmo, ET
Toys, all bankrupt and gone within
roughly 18 months of the peak. Cisco
still hasn't hit a trillion dollar
valuation even now. And that's 24 years
later. And Amazon, well, you know how
that turned out. If you thought you knew
who the winners were in 1999, you were
almost guaranteed to be wrong. And if
you were right, you had to survive all
of your picks dropping massively in
value. That's why humility in the face
of so much uncertainty is an investing
superpower. Ray Dallio has many times
said that he built the largest hedge
fund in the world by realizing just how
often he's wrong. Pillar two, own the
picks and shovels. Infrastructure
requires less hype. During the cold
rush, the people selling picks, shovels,
and denim got rich. The guys who are
actually panning for gold did not.
The.com era played out exactly the same
way. And there's a reason that Nvidia is
out to an early lead in AI. Underneath
all of the crazy websites and doom
portals, you had the picks and shovel
companies, semiconductors, networking
gear, data infrastructure, servers, the
boring stuff that actually made the
internet work. Companies like Intel,
Cisco, Qualcomm, Oracle, they got
smashed in the crash. Nobody was spared.
But here's what matters. They survived.
Intel recovered and kept compounding.
Oracle eventually traded to multiples of
its dot highs. Qualcomm not only
recovered, it went on to 10x from the
ashes. Cisco never made new highs, but
it remained a backbone of the modern
internet. Now compare the app layer
darlings of our time to their dot
equivalents. Infospace, LOS, Excite,
Pets.com, Webban, Cosmo, Etoys, one
after another, they either went bankrupt
or lost 98 to 99% of their value and
never recovered. If you'd owned a basket
of semiconductors, networking and core
infrastructure on the other hand, you
would have taken a brutal hit during the
crash. Sure, but you would have been
alive to participate in the next 20
years of the internet's growth. If you'd
concentrated on the shiny front end,
however, you were done. Translated back
to AI, the picks and shovels are
compute, chips, data centers,
networking, infrastructure, software,
energy, security, etc. the stuff every
AI application needs, whether it hits
big or strikes out. That's a very
different bet than going allin on a
consumerfacing chatbot that could be
obsolete the second the underlying model
changes. Pillar three, bet on real
revenue, not narrative. The dot
survivors had one boring thing in
common. They had actual paying customers
for a product that actually worked. In
1999, Amazon did about 1.6 billion in
revenue. not exactly lighting the world
on fire. In 2000, 2.7 billion. In 2001,
3.1 billion. Going in the right
direction. While their stock fell 95%,
their revenue almost tripled. They were
building real logistics, real customer
relationships, real infrastructure. The
share price was hallucinating, not the
company. Pets.com was the flip side of
that coin. In 99, the revenue was about
$619,000.
In 2000, roughly 5.8 million. But the
net profit was zilch. They lost around
$147 million. And it wasn't just them.
Many, many others were in the exact same
boat. The companies that survived the
dot collapse were the ones that could
actually charge money and keep customers
coming back. Period. The rest were
narrative plays. It's all investing
theater. We're seeing the exact pattern
with AI. About 70% of AI startups right
now have no meaningful revenue. The vast
majority are wrapping someone else's
foundational model and calling it a
business. The companies with positive
cash flow are the ones that are going to
be able to survive long enough to become
part of the AI enabled future. Pillar
four, don't use leverage. And please
diversify. If you tried to pick the
winners in 99 by loading up exclusively
on Infospace, WorldCom, Nortell, Yahoo,
Global Crossing, and the other once
hyped public failures, you got
absolutely wrecked. Most of those names
went to zero and got dragged through
bankruptcy court. And if you used
excessive leverage, you almost certainly
got wrecked. If on the other hand, you
did not use leverage and you owned a
boring broad basket of tech and sought
out uncorrelated revenue streams, your
outcomes were very different. And if you
stayed in for decades after the crash,
odds are you were up big time.
Life-changing wealth. The exact
life-changing wealth that makes
millennials hate the boomers. A
diversified portfolio of futureleaning
names would have almost certainly
included Amazon up around 6,000x since
IPO. Apple up roughly 4,000x from the
early 2000s. Google up approximately 70x
since IPO. Nvidia up 600x just since
2001. And inevitably a whole bunch of
losers. It's just the way it goes. But
you didn't need to know which ones were
the winners and which ones were the
losers. You just needed to have enough
humility to hedge your bets and own the
entire sector. That's certainly my
approach to AI. Pillar five, hold
forever. Whatever survives the
inevitable crash, this is a part almost
nobody gets right. The.com bubble did
not make people rich in 99. It made
people rich from 2002 to 2024. The real
wealth came after the crash, long after
the crash, for the people who survived
it with the right assets in hand. and
the emotional resilience to hold them.
Amazon fell about 95% after the bubble
burst. From that bottom, it went up over
a 100,000%.
$10,000 put into Amazon in 2001 turned
into something on the order of $13
million. Apple, once Left for Dead, went
on to split over and over and compound
something like 600x from the early
2000s. Google grew from a modest IPO to
one of the most dominant companies on
planet Earth. Nvidia went from a subdoll
curiosity to one of the most important
firms ever. The pattern is clear. The
wealth wasn't made by predicting the
bubble or predicting the winners. The
wealth was made by surviving the bubble
and then holding the winners as they
rebuilt the world slowly over time. The
goal is not to perfectly time the top or
the bottom of the AI cycle. The goal is
to structure your portfolio and your
psychology so that a you don't get wiped
out when the narrative breaks, b you
still have exposure to the real
innovators, and c you're emotionally and
financially able to hold what you own
for a decade or more as the real
productivity gains may take years to get
fully realized. If you put all of this
together, reflexivity, the current
productivity gap, fiscal dominance, and
the lessons of the.com bubble, a very
clear picture begins to emerge. AI is
almost certainly going to be
revolutionary. The world is almost
certainly going to change forever. And
yet, markets can remain irrational for
far longer than most people can remain
solvent. Especially when you remember
that the markets are manipulated by hype
and hyper experienced traders with very
deep pockets and a profound
understanding of how markets move. And
some of them even like to see other
people lose. Plus, humans are just
irrational. They do everything,
especially investing based on emotions,
not mathematics. We overb believe. We
way overlever. We confuse narrative with
reality. We price in the future long
before it gets here. And when money is
cheap, we shovel it into markets as fast
as we can until something forces us to
stop. The dotcom bubble wasn't a story
about predicting winners. It was a story
about surviving long enough to let the
winners reveal themselves. The AI era
will be no different in that respect. AI
is real. It's already powerful. Over the
long run, it will almost certainly be
far more transformational than the
internet. But that doesn't mean every AI
investment is wise, that every valuation
is justified, or that every company with
AI in the name will even exist 10 years
from now. Your job is not to outguess
everyone else. Your job is to stay
humble, own the infrastructure, look for
real economics, diversify your exposure,
and hold on to the survivors when things
finally reset. Do that and the AI bubble
won't be the thing that wipes you out.
It'll be the moment the real gains begin
if AI doesn't kill us all first. All
right, you guys. If you want to see me
explore topics like this in real time,
be sure to join me live Wednesdays and
Fridays at 6:00 a.m. Pacific on YouTube
X, Twitch, or Kick. You can join the
debate or just chill in the community. I
hope to see you there. Till next time,
my friends, be legendary. Take care.
Peace. If you like this conversation,
check out this episode to learn more.
IRS enforcement staffing has fallen by
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even as the tax code ballooned to more
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