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Daily Missive

Too Much of a Big Nothing

Loading ...Bill Bonner

August 5, 2025 • 4 minute, 44 second read


big techmarket concentrationmarket valuation

Too Much of a Big Nothing

“During the dot-com days, one could take just about any company public and reap fortunes. All you had to do was to make sky-high projections for growth, say you were in the Internet space, and go along with unscrupulous investment bankers and their analysts.”

— Vivek Wadhwa

August 5, 2025 — Two companies — Nvidia and Microsoft — each are worth more than $4 trillion. Together, that’s more than India’s and Japan’s combined annual output.

Price is what you pay, as Buffett puts it. Value is what you get. Our question for today: how much value will investors really get from the Magnificent 7?

Our Law of Conservation of Value tells us that prices cannot stray too far or too long from value. And value depends on output. Investors ought to be able to look to a future stream of income and from it earn their money back…and more.

Even in the dot-com bubble in 1999 the top companies were not as valuable or as concentrated as they are today. Nvidia, Microsoft, Alphabet, Apple Meta, Tesla and Amazon — together, these companies make up a third of the total US stock market value, an amount roughly equal to China’s GDP.

Part of the appeal of these Mag 7 stocks is that they are widely believed to be taking advantage of AI technology. In the case of Nvidia, of course, that is the central appeal. But the others are investing heavily in AI too.

In 2024 and 2025, Meta, Amazon, Microsoft, Google and Tesla will put more than half a trillion into AI. The revenue from these investments is expected to be around $35 billion. Amazon, for example, has invested more than $100 billion, which is thought to generate an extra $5 billion in revenue.

We don’t know how reliable or meaningful these figures are. What we do know is that they aren’t very impressive. As in the dot-com boom of the late ‘90s, AI is not paying off. This is an in-put story, with huge investments made in the hope of creating AI-based wealth. But so far, the output doesn’t measure up.

You can go to ChatGPT, for example, and pay for the service. Many people use it occasionally — including us. But few pay for it — also including us. This would be fine, except that so much investment has gone into AI development that anything less than spectacular results will look like failure. One estimate, from Goldman Sachs, for example, showed that the Mag 7 would have to produce $600 billion in extra annual revenue to make sense of their investment.

Michael Roberts:

So while the excitement of AI takes the stock market to new heights… a huge investment of money and resources, astronomical payments to AI trainers, and the construction of huge data centers [there]…so far no significant revenue has been generated and there is almost no profit. This is a steroid-friendly version of the dot-com bubble.

The appeal of the dot-com era was the idea that more information would lead to higher GDP growth rates with less need for capital investment. Costly trial-and-error expansion would be replaced by less costly, more precise, knowledge-driven growth, or so it was believed.

It didn’t work out that way. Productivity and growth rates generally softened throughout the 21st century. Capital investment went down. The Internet/Information Revolution did not compensate for the decline; it seems to have made it worse. The OECD adds detail:

In the last half century, we have filled offices and pockets with increasingly faster computers, but the increase in labor productivity in developed economies has declined from about 2% annually in the 1990s to 0.8% in the last decade. Even the production per worker of China, which once increased rapidly, has stopped. Research efficiency has decreased. Today, the average scientist produces less groundbreaking ideas per dollar than his colleagues in the 1960s. Despite the rise of intangible assets, total investment has generally been weak since the global financial crisis, which has directly worsened the slowdown in labor productivity.

Will that change with AI? Probably not. The defining curse of the Information Revolution was too much information. It piled up. It got distorted and misinterpreted. It took time and money to store and sort. And much of it was either false or useless.

Now cometh AI, adding to the too-much-info problem. Already, it generates news and reports that fill our in-boxes and waste our time. And an Israeli company just announced that it can twist and turn (distort) the news in real time.

Which leaves, at least for now, AI and the Mag 7 in an old-fashioned financial bubble. Stock prices are far higher than actual sales and profits can account for. So one way or another price and value will have to come back together. While it is not impossible that some breakthrough will lead to a big burst of productivity gains and growth, it is more likely that stock prices will fall.

Regards,

Bill Bonner
Bonner Private Research & Grey Swan Investment Fraternity

Continued Below…

P.S.: Bill’s insights echo ours – we’re still mindful that markets may not decline right away. And that any decline we do get may be of the garden-variety seasonal pullback.

But a high concentration in just a few stocks – widely owned by investors specifically, or as the biggest components of passive index ETFs – pose a growing danger.

And that’s not even taking into account economic concerns like a slowing job market, stubborn inflation, and President Trump’s ongoing Great Reset of the American economy, which will have some bumps along the way.

Hence our suggestion to take some profits off the table and increase your cash position slightly.

Your thoughts? Please send them here: addison@greyswanfraternity.com


The Ignorance of Experts

August 7, 2025 • Joel Bowman

Might it be that experts didn’t know all they claimed to know after all… that the climate is a complex phenomena largely beyond our comprehension, full of shifting dynamics, cascading interrelationships and natural feedback loops… and that maybe, just maybe, human beings are not the center of the universe we (ever so humbly) presumed we were?

A new report by the United States Department of Energy (DOE) certainly appears to suggest as much. Titled “A Critical Review of Impacts of Greenhouse Gas Emissions on the U.S. Climate,” the report was authored by a group of highly credentialed scientists, including, to the chagrin of those who seek to politicize everything up to and including the weather, the former Chief Scientific Officer of the Obama Energy Department.

The Ignorance of Experts
Confidence Games

August 7, 2025 • Addison Wiggin

So far this August, we’ve seen Powell under siege, inflation data in question, and a fresh wave of Trump tariffs — each enough to rattle investors even in isolation.

Yesterday, equities whipsawed after news broke of a 50% tariff on Indian imports, aimed at punishing Delhi’s ongoing purchases of Russian crude. By day’s end, the major indexes recovered slightly, but the tone of the market has clearly shifted.

Trump’s reciprocal tariff deadline — long advertised as a hard line — arrived at midnight last night. But not without drama.

In the final hours, Trump squeezed in one last round of changes: raising duties on India, surprising Japan with rates higher than expected, and teasing China with the possibility of similar action. Switzerland, hit hardest among U.S. allies, may cancel a major jet order in retaliation.

Confidence Games
From Two Centuries to 27 Months

August 7, 2025 • Addison Wiggin

In the past 27 months, more debt has been created in the U.S. than during the first 215 years of the Republic.

That kind of exponential move isn’t sustainable. Like tulip prices in 1637 or shares of Cisco in January 2000, it can’t last. The question isn’t whether this will collapse — it’s whether or not we get a massive market run first.

That seems to be in the cards — what Austrian Economist Ludwig von Mises called the “crack up boom.”

And it’ll be fueled by a combination of debt and the collapse of the purchasing power of the dollar. Not a company’s earnings or AI spend. That won’t be a typical bull market — it’ll be a terrifying one.

From Two Centuries to 27 Months
James Howard Kunstler: Suspicious Minds

August 6, 2025 • James Howard Kunstler

This enormous, drawn-out insurrection, composed of serial felony crimes, amounts to the greatest insult against the republic — the res publica, in Latin, the public thing — in the nation’s history. And now it is coming apart as an overwhelming majority of citizens, including now many Democrats, can’t avoid discovering what has happened in the country. Because lies are weak and the truth is sturdy and eventually truth prevails, even after an arduous struggle.

The old news media complex, the networks and the papers, are not reporting the recent disclosures by the Directors of the CIA, the FBI, and National Intel. What will it take to get their attention? Arrests and perp-walks of formerly important officials? And then, do they acknowledge and atone for their disgraceful participation in the events? Or pretend they couldn’t figure any of it out for years and years? Poor us, we didn’t know! Suddenly, it looks like many of these “legacy” news outfits are going out-of-business. They’re throwing their performers over the side like sinking ships casting off so much useless ballast.

James Howard Kunstler: Suspicious Minds