The AI Boom

Growing up, AI stood for artificial insemination.

It worked like this.

When mum and dad first bought the farm in Kangaroo Valley, dad would phone the AI centre in Berry when a cow came on heat.

He’d tell them what bull (semen) he wanted and a few hours later a technician would arrive to inseminate her.

It was a massive leap in technology because farmers could access the best bulls from all over the world. It was like dial-up internet for dairy farmers.

The next big leap occurred when farmers could AI their cows themselves. This was like wireless internet for farmers. Freedom!

Eventually, this led to a productivity boom which meant more milk from the same number of cows and greater profits.

Naturally, farmers began focusing on the best bulls to increase herd productivity.

In particular, there was one bull named ‘Linmack Kris King’ who sired some of the best cow families in the world.

He was the Phar Lap of dairy cattle.

His influence on dairy cow production worldwide was so significant, nearly every farmer wanted his straws (semen).

Unfortunately, ‘Linmacks’ straws were so widely used it eventually lead to inbreeding resulting in severe genetic mutations.

The effects were devastating and long lasting.

Put simply, AI in the sixties and seventies was like buying your first smart phone. It was exciting and it changed cattle breeding forever but it came with major consequences if abused.

This new boom in AI (artificial intelligence) will be no different.

Right now, AI (intelligence) stocks are experiencing a Bitcoin-like bull market with the NASDAQ up 30% in five months.

Individual stocks like Nvidia are up nearly 400%.

So what’s driving the AI sector?

AI isn’t new but it hit an inflection point in November 2022 upon the release of chatGPT.

Consequently, investors have gone all Linmack on AI stocks which has driven their valuations to meteoric levels.

So will it last?

No.

Here’s why.

Mania never, ever lasts. Nor does it end well.

Want proof?

This time two years ago you were considered a dinosaur if you didn’t invest in, or at least believe in, crypto. Now look at it. Bitcoin has crashed and most of the other 8,500 crypto coins are quickly disappearing.

And then there was the unbridled mania around interest rates. Borrowers took out 30 year loans believing rates would stay low forever.

The AI sector will follow the same path as Bitcoin. It will go way up and then way down.

But it won’t die.

Fifty years later, an increasing number of dairy farmers are now using AI to run their AI!

Meaning, their cows are microchipped so that when an animal comes on heat the farmers phone pings them to AI (inseminate) the cow.

And then when the cow comes into the yards, she’s automatically drafted via Bluetooth so the farmer hardly has to do a thing.

It’s safer for the handler, gentler on the animal and very cost effective. But it took a lot of time, money and mistakes to reach this point.

This AI (intelligence) boom will be no different. It will be manic, followed by a crash with lots of painful lessons, and then genuine re-growth will occur.

Every market boom follows the same bipolar cycle. Mania > depression > equilibrium.

Read, Bitcoin

And that’s why I wouldn’t be going within a bulls roar of any AI stocks right now. Just wait.

Have a great weekend!

Adam

Back paddock – worry is like a rocking chair. It might give you something to do but it doesn’t get you far.

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