The AI Mania: The TruthFinancial prices are not reasoned, and they are certainly not random. The only logical conclusion is that they are unconsciously determined. NVDA is a striking example of this reality in the financial markets.
Let’s consider the past three years. Many may not realize that the majority of U.S. stocks peaked in 2021. The recent all-time highs in a few select technology companies have served as a smokescreen for an ongoing bear market that began that year. NVDA, at the center of the AI craze, exemplifies this trend. Since 2023, NVDA has surged roughly 1,200%. Is this due to any significant changes in the company or its earnings? No. The truth is that there is no logical way to evaluate what a stock should be worth. A stock’s value is simply what someone is willing to pay for it, and that price cannot be rationally determined.
It seems likely, given the current evidence, that the market is following a robust fractal pattern described by the Elliott Wave Model. Prices follow this model because it is rooted in our DNA. The herding instinct, which resides in our basal ganglia, unconsciously drives us to join the herd when situations are uncertain and stressful. This unconscious, endogenous process affects every human being daily. Many of the choices we make, such as where we put our money (stocks, bonds, real estate) or even what we wear out to dinner, are influenced by this unconscious social mood. R.N. Elliott discovered that the stock market, our main meter of social mood, follows a hierarchical fractal pattern. This pattern describes the movements of social mood, which then influences a person’s mood, which in turn influences their emotions, leading to actions. Under this framework, the character and tenor of news/events become predictable.
Many point to P/E (price/earnings) ratios as a measure of value, but this indicator has proven useless for NVDA. Its P/E went from 19 in January to 144 in March to 56 currently and maintained a uptrend the entire time, yet its investors do not seem concerned. Let me make a bold claim that shouldn’t be bold at all: NVDA is the new Cisco, echoing the dot-com bubble. This will end the same way every financial mania has ended since the South Sea bubble of 1719-1722—with a major crash.
There is nothing logical about NVDA trading at a P/E of 144 (and now 56), yet analysts still tout it as one of the greatest investments of our time. I am not arguing that AI isn't revolutionary. I’m saying there's a difference between AI and AI stocks. AI solves problems; AI stocks rise and fall with the market's mood. The internet is still with us, yet internet stocks (NASDAQ) crashed 78% after the internet mania of the early 2000s.
A change is coming to the world of finance, where empirically driven analysis will be seen as much more fitting for the financial marketplace. The paradigm on which modern macroeconomics depends is fallacious. The tide is changing. Watch as fundamentalists and growth stock enthusiasts hide away and rationalize any reason for why the crash happened. Many will exclaim that it was obvious, saying things like, "The yield curve was inverted for over 750 days; of course, we were going to get a recession!" But that's not what they’re saying now! Now they are giving you every reason to buy and hold. The truth is, there has never been a time in financial history where we have seen overvaluation like we are seeing today. To put this in perspective: the base money supply is $7 trillion. Derivatives bets control over $200 trillion. THIS SPECULATION BUBBLE WILL NOT END WELL. Be safe.
My target for NVDA is 11 dollars
Cheers,
Bardini Capital aka abardini
Work Cited:
Prechter, Robert R. The Socionomic Theory of Finance. Socionomics Institute Press, 2016.
Despite the criticism directed at Prechter, his research remains remarkable and largely unrecognized by the public. Yes, he’s made some incorrect predictions in the past, but dismissing all of his work because of a few bad calls is shortsighted. And if anyone finds an analyst with a perfect track record, let me know.
