Investor enthusiasm for AI is reminiscent of the Internet boom circa 1995. Having worked at Google, I’ve seen AI’s profound impact firsthand, from computer vision to self-driving Waymo vehicles that have achieved 10M rides. But as an investor, the focus must shift to economics: business models, monetization, and valuation. Billionaires like David Einhorn are sounding the alarm: spending hundreds of billions on AI infrastructure may lead to massive capital destruction if CapEx vastly exceeds consumption. History shows that while the technology transforms society, an oversupply creates painful market corrections. The question isn’t if AI is the future—it’s what price you pay for it.
Investing Lessons
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Jay Powell: “Stocks are Overvalued”
The current market presents a stark contradiction: stocks are high, but the Fed is entering an easing cycle. As billionaire David Tepper notes, he’s “constructive on stocks” due to cheapening money but “miserable” because valuations are sky-high. Warren Buffett mirrors this caution, holding a record high of over $344 billion in cash. This balance reflects the core tension: stocks can easily run higher on investor optimism, yet the consensus is that forward earnings multiples are dangerously stretched. Like Buffett in 1969 and 1997, savvy long-term investors are prioritizing capital preservation, maintaining some exposure while waiting for the inevitable mean reversion to bring prices back down to a prudent level.
How Buffett Thinks About Selling
Selling stocks is harder than buying them. Drawing on lessons from Warren Buffett – investors should sell for four key reasons: (i) when a stock is overvalued relative to bonds, making bonds a more profitable option; (ii) when a superior investment opportunity emerges, though you should be careful not to “sell flowers to buy weeds.”; (iii) when the business fundamentals change, and its competitive advantage is at risk; or (iv) When a predetermined price target is met.