What If AI Turns Out To Be A Bubble?

 

If the current artificial intelligence, AI boom proves to be a bubble, the Nasdaq Composite could fall more than 81 % from its current level, according to Wolfteam Ltd.'s projections and estimates.

Currently, according to many metrics the Nasdaq Composite current level is almost at the level of the Nasdaq Composite at the height of the Dot Com bubble. From peek to trough at the 2000 Dot Com bubble and subsequent bust the Nasdaq Composite fell 77 %.

This time around, if the AI bubble bursts, the fall of the Nasdaq Composite could be a little bit worst, in Wolfteam Ltd.'s view.

It is true that the leading technology companies with more than 1.35 trillion USDs in market capitalization each, like NVIDIA, Apple, Microsoft, Alphabet, Amazon, Meta and Tesla are extremely profitable, partially excluding Tesla due to its relatively low profitability. But Cisco and Microsoft were hugely profitable during the Dot Com boom also. In 2000 it turned out that that level of profitability was simply unsustainable. The leading technology companies in 2000 invested a lot in fiber optic infrastructure and the world needed decades to fully utilize that internet infrastructure.

It turned out that the technology giants in the 2000 boom over invested in internet technology infrastructure in the short-term, which hit their profits. But in the long-term, 10-15 years that over investment turned out good for society and the technology community.

Similarly now the hyperscalers Amazon, Alphabet, Microsoft and Meta are spending 100s of billions of USD per year in artificial intelligence, AI infrastructure. It may well turn out that in the short-run  hyperscalers Amazon, Alphabet, Microsoft and Meta are over investing, but in 10-15 years the AI infrastructure they are now building may be fully utilized.

In the worst case scenario, the graphical processing unites chips mainly NVIDIA manufactures in the current AI data centers could turn out to be obsolete in 5 years, replaced by newer, with far better technology GPU chips. Which will deprecate the value of the current AI data centers and hit the  hyperscalers Amazon, Alphabet, Microsoft and Meta with hundreds of billions USDs of losses.

Such a scenario at the moment has a probability of around 25 %, according to Wolfteam Ltd.'s projections and estimates.

If the AI dreams of robots everywhere, billions of robots serving humanity and AI data changing our lives, how produce and consume leisure come to fruition in the most optimistic scenarios of Wall Street research analysts, investors and Silicon Valley investors and technologists, NVIDIA, Apple, Microsoft, Alphabet, Amazon, Meta and Tesla could prove grossly undervalued.

 

How High Can KKR's Market Capitalization Go On AI?

KKR, the leading private, real estate and private credit alternative asset manager could climb to 320 billion USDs in market capitalization value, if artificial intelligence, AI lives up to the current forecasts of many Wall Street research analysts, investors and Silicon Valley technologists, because KKR is a leading investor in AI data centers, online merchandise trading infrastructure and outright investments in AI technology growth and mature companies, according to Wolfteam Ltd.'s projections and estimates.

That compares to KKR's current 108.09 billion marker capitalization. 

KKR's revenue could climb from the current 16 billion USD on average for the last five years to 43 billion USDs on average on larger and bigger in numbers yearly deals in artificial intelligence, where much of the leading private, real estate and private credit alternative asset manager investments go currently via investments in AI data centers, online merchandise trading infrastructure and outright investments in AI technology growth and mature companies, according to Wolfteam Ltd.'s projections and estimates.

KKR could benefit from both its current exposure to AI and future increase of the value and number of deals involving artificial intelligence, AI companies.

AI's current boom could turn into a bust of course, but for the time being self perpetuating expectations and the higher revenues and profits of AI firms drive the AI boom and the flourishing of AI technology companies. 

 

 

How High Can Microsoft's Market Capitalization Go On Artificial Intelligence?

Microsoft's market capitalization could reach 11.5 trillion USD in 10 years if Artificial Intelligence, AI lives up to the current high expectations of Wall Street analysts, investors and Silicon Valley technologists, according to Wolfteam Ltd.'s projections and estimates.

Microsoft's current market capitalization is 3.67 trillion USD.

In 10 years time Microsoft's revenue could reach 500 billion USD and with the current net profit margin of 36 % this would make for a net yearly profit of 180 billion USD, in Wolfteam Ltd.'s view. Even at such revenue and profit a possible future Microsoft market capitalization of 11.5 trillion USD will make for circa 64 Price/Earnings ratio which still makes up for a significant future growth.

AI could still yet prove a bubble, but in the mean time the leading technology companies could reach stratospheric values in market capitalization. 

 

 

 

How High Can Apple's Market Capitalization Go In An AI Positive Case?

 

Apple's market capitalization could reach 18 trillion USDs if AI reaches its full potential and transforms society as forecast currently by many Wall Street research analysts, investors and Silicon Valley technologists.

That compares to Apple's current market capitalization of 4.01 trillion USDs. 

Apple would have to report 700 billion USDs in annual revenue and 180 billion USD in annual profit in 10 years to justify 18 trillion USDs market capitalization, according to Wolfteam Ltd.'s projections and estimates.

The main driver of such a revenue increase will be iPhone, Macintosh and iPad sales, which would be one of the main carriers of the current artificial intelligence, AI revolution, if AI lives up to its current hype.

 

 

 

How High Can Blackstone's Market Capitalization Go In An AI Positive Case?

 

Blackstone Inc, the leading private equity, real estate, private credit alternative asset manager along with the other KKR, Apollo, Carlyle, Ares,  Blue Owl, CVC, etc. leading private equity, private credit, real estate alternative asset managers is at the forefront of investing, investments in artificial, AI.

If artificial intelligence, AI lives up to the current of most Wall Street research analysts and investors estimates to 80 %, that Blackstone's market capitalization, as the leading alternative asset manager investing in AI, could rise to 1.1 trillion USDs in 5 to 7 years, according to Wolfteam Ltd.'s projections and estimates. 

That compares to Blackstone's current market capitalization of circa 175 billion USDs. 

Blackstone, KKR, Apollo, Carlyle, Ares, CVC, Blue Owl Capital, etc. leading private equity, private credit, real estate alternative asset managers invest large portion, usually more than 35 % of their newly raised and existing funds in artificial intelligence, AI infrastructure like data centers, energy companies.

Just recently, Meta, Facebook's owner announced a 30 billion data center financing bill with Blue Owl Capital .

It is expected that such data center financing structures will proliferate in the future.

Blackstone is expected to remain the largest and leading institutional investor in artificial intelligence in AI, which sooner or later will be reflected in its market capitalization, in Wolfteam Ltd.'s view.

If AI reaches only 30 % of its current estimated potential, Blackstone's market capitalization could fall to 120 billion USD, a circa 30 % of Blackstone's current market capitalization. The fall would be cushioned by Blackstone's portfolio current investments, which are rich cash flow positive and large dividends yielding.

 

How High Can NVIDIA Stock Market Capitalization Go?

 

Currently, the market for AI graphical processing units chips is estimated by various Wall Street analysts to grow to 400 billion USDs by 2029.

NVIDIA controls between 70 % and 95 % of the market for market for AI chips used for training and deploying AI models.

So, If NVIDIA keeps its current market share and reaches 400 billion USD in annual sales by 2035 and one applies the current Price/Sales ratio of circa 30 and increases it to 43, NVIDIA's market capitalization could reach 17.2 trillion USD in the very optimistic case that AI lives up to circa 75 % of its current estimated by Wall Street research analysts and investors potential, according to Wolfteam Ltd.'s projections and estimates.

If, however artificial intelligence, AI's potential lives up only to 30 % of the current estimates, the Dow Jones Industrial Average, the S&P 500 and the Nasdaq Composite indices could fall by 53 %, 64 % and 80 % from their recent peaks.

NVIDIA's market capitalization in AI living up to only 30 % of its potential case could fall 84 % from its recent peak to 714 billion USDs, according to Wolfteam Ltd.'s projections and estimates.

 

AI Valuation Multiples

 

For developed AI hyperscalers Price/Earnings of 40 and Prices/Sales of 7 to 10 seem adequate, according to Wolfteam Ltd.'s projections and estimates.

For fast growing startup AI companies Price/Earnings of 200 to 300 and Prices/Sales from 20 to 40 seem to capture adequately the possible long-term growth, in Wolfteam Ltd.'s view.

Where Will The AI Hyperscalers Get The Funds For AI Data Centres? Private Equity Could Help

 

Alphabet, Meta, Microsoft and Amazon have each announced intentions to invest hundreds of billions of USDs in artificial intelligence, AI infrastructure, computing data centers that is.

Alphabet has around 95 billion of USDs in cash, Meta has around 47 billion USDs in cash, Microsoft has close to 95 billion USDs in cash and Amazon has close to 93 billion USDs in cash on their balance sheets according to public data.

So the question is where Alphabet, Meta, Microsoft and Amazon will get the hundreds of billions of USDs in funds to build out AI data centers.

In the last weeks Meta announced a 27 billion USDs joint venture with Ares, the private credit, private equity and real estate asset management company.

This could be where the hypercalers Alphabet, Meta, Microsoft and Amazon will look for the needed AI compute funds. Basically, they will use private equity, private credit's firm dry powder capital of 2 billion USDs for investing to raise the money. The leading private equity companies will most likely raise new fund vehicles to finance the AI boom.

In short, the artificial intelligence, AI boom investing will continue for the time being, in Wolfteam Ltd.'s estimates. 

Will Private Equity Firms Continue To Invest In AI?

 

Private equity firms will most probably continue investing in artificial technology, AI firms and AI data centers due to fear of missing out and not beating the S&P 500, according to Wolfteam Ltd.'s projections and estimates.

Technology and AI based technology in particular is what has worked since 2013. In the first years since 2013 it was the smartphone, after 2015 came cloud computing, but both the smartphone and the cloud computing and storage revolution are driven by algorithms and artificial intelligence, AI models which underlie them. 

According to many Wall Street equity and fixed income research analysts and investors, the leading private equity firms Blackstone, KKR, Apollo, Carlyle, Ares, CVC etc. will go on financing the AI boom, in order not to miss out on outperforming the S&P 500, the Dow Jones Industrial Average, the Nasdaq Composite and to go on fulfilling the promises they made to their Limited Partnerships investors.

Private equity firms need constant incoming cash flow and deal flow to return money to their Limited Partnerships investors. Artificial intelligence, AI technology firms lack dividends cash flow, but they provide for dynamic deal flow, which suits private equity firms, which finance heavily the fourth industrial revolution or artificial intelligence, AI and its profound change effect on our everyday life. 

Private Equity Funds Still Value AI Firms Too Conservatively

 

Private equity firms, influenced by their usual workflow value artificial intelligence, AI technology firms still a bit conservatively.

Private equity firms tend to look more at the past performance of mid-sized AI technology firms, that their possible future revenue and net profit growth paths, according to Wolfteam Ltd.'s projections and estimates

This is because private equity firms have to constantly return money to investors due to their funds' maturities mismatch. Private equity firms have to constantly do deals, which makes them value AI tech firms too low for the path breaking nature of artificial intelligence, AI, in Wolfteam Ltd.'s view. 

Hyperscalers Valuation. Alphabet, Microsoft, Amazon, Meta and Apple

Hyperscalers are computing companies that provide large computing resources as computing power, storage, AI, artificial modelling or statistical modelling and provide extreme scalability to accommodate workloads at massive scales.

Alphabet, Microsoft, Amazon, Meta and Apple, the leading artificial intelligence, AI hyperscalers are all valued into more than 1.5 trillion USDs each. These are staggering amounts of money, each more than the GDP of any economy outside the 7 largest economies like USA, China, Germany, Japan, UK, France, Canada, Italy and even some more.

Are the leading artificial intelligence, AI hyperscalers Alphabet, Microsoft, Amazon, Meta and Apple overvalued? No, according to Wolfteam Ltd.'s projections and estimates.

How to value the hyperscalers.? First, global GDP is 111.25 trillion USDs. Global financial assets are 305 trillion USDs according to the Boston Consulting Group report. Taking into account these macroeconomic figures and the revenue and profit reported by Alphabet, Microsoft, Amazon, Meta and Apple and extrapolating future growth and profitability, based on the current fundamentals and competitive advantages of Alphabet, Microsoft, Amazon, Meta and Apple, the AI, artificial intelligence hyperscalers, Alphabet, Microsoft, Amazon, Meta and Apple could be valued at 8 trillion USDs for Alphabet, 5.9 trillion USDs for Microsoft, 4.3 trillion USDs for Meta, 6.3 trillion USDs for Amazon and 7.1 trillion USDs for Apple according to Wolfteam Ltd.'s projections and estimates.

All these tens of trillions of USDs of value are driven by the fourth industrial revolution of artificial intelligence, AI, which will enhance greatly our productivity, provide us with better leisure, increase our well being and ultimately help us live better lives. There will be intermediate hyper booms and subsequent busts of trillions of USDs of created and subsequently destroyed value, which will characterize the current artificial intelligence, AI wave in Wolfteam Ltd.'s view, but ultimately artificial intelligence,AI should keep changing our lives and creating huge wealth in the process.

 

AI Data Centres Are Private Equity Firms Hottest Investment

 

Blackstone, KKR, Apollo, Carlyle, Ares, CVC, etc., the largest private equity firms are investing en masse in artificial intelligence, AI data centers and online merchandise trade distribution centers.

Apparently, the largest private equity firms bet on the AI boom continuing and changing profoundly our world. Yes, AI is the fourth industrial revolution, but artificial intelligence, AI's progress will be slower and more gradual with many mid-sized booms and busts than many investors and analysts assume, according to Wolfteam Ltd.'s projections and estimates.

Private equity and private credit firms sometimes invest in technology firms with Price/Sales ratios of 10 or more or Price/Earnings of 43 or more. Such technology firms investments could prove too volatile for the institutional capital, private equity fund managers manage, in Wolfteam Ltd.'s view. At least in the concentration they are doing it.

But for now the AI boom seems to go on. 

OpenAI Deals With NVIDIA, AMD And Oracle

 

OpenAI has in the recent days announced circular deals with NVIDIA and AMD where the seller in fact finances the buyer to buy their products, akin to the circular lend-to-buy deals during the peak of the dot com boom, which fed the internet boom and contributed to its subsequent bust, according to many investors and analysts.

NVIDIA for example will invest up to 100 billion USD in OpenAI, with which OpenAI basically will turn around and buy NVIDIA graphical processing units, which will power to be built in the future OpenAI AI data infrastructure centers. 

In addition AMD and OpenAI in the last week announced a deal which could see AMD getting tens of billions of USDs in value of computer processing units and graphical processing units chip units orders and in exchange OpenAI could end up owning up to 10 % of AMD's stock, if AMD's stock hits certain targets. 

What is more, OpenAI signed a 300 billion USD in future revenue deal for Oracles in exchange for 4.5 gigawatts of additional Stargate project capacity.

The OpenAI NVIDIA and OpenAI AMD deals seem somewhat similar to the lend-to-buy deals that many technology companies concluded in the dot boom and bust era, which basically are technology companies lending potential buyers money to finance purchasing their services and products.

The money that Open AI will receive from AMD and NVIDIA is scheduled to flow back into AMD and NVIDIA to purchase graphical processing units chips, which will power data centers for the OpenAI, Oracle and SoftBank planned Stargate storage capacity infrastructure for artificial intelligence, AI which is supposed to cost around 500 billion USDs.

Basically, such transactions could go along, as long as the artificial intelligence, AI data boom keep going. If artificial intelligence does not live up to its current expectations, we could experience another technology bust, which could see the Nasdaq Compsite falling more than 55 % from its peak and many flagship companies could go out of existence, according to Wolfteam Ltd.'s projections and estimates.

But for now, artificial intelligence, AI is set to change every industry we know by expanding the business' productive capability and enhancing human potential by helping us produce more, rest more, enhance our wealth more and in effect live better lives lead by the fourth industrial or artificial intelligence, AI revolution, in Wolfteam Ltd.'s view. 

Private Equity Deals Will Recover

 

Private equity deal making will soon recover, according to Wolfteam Ltd.'s projections and estimates.

Private equity has close to 2 trillion USDs of dry powder or capital for deals.

The largest private equity firms have so far preferred to do deals in artificial intelligence, AI, IT related sectors like data centers infrastructure or energy or online merchandise related deals like delivery centers.

That said, many other sectors are getting less capital and are now undervalued, according to Wolfteam  Ltd.'s estimates.

Utilities, commodities, industrials, partly energy are some of the dividend yielding, undervalued sectors, which could prove of interest to private equity.

Especially if the AI boom slows down.

In short, private equity has a whole universe of good yielding assets to choose from outside artificial intelligence, AI where most of private equity assets and deal making has been flowing into. 

Robinhood Markets Valuation. Comparison With Goldman Sachs And Morgan Stanley

Robinhood Markets Inc, the US based stocks, options and cryptocurrencies brokerage is undervalued, according to Wolfteam Ltd.'s projections and estimates.

Robinhood Markets' intrinsic value is 174 billion USD compared to Robinhood Markets' current market capitalization of 132.12 billion USDs.

Robinhood Markets verticals of growth, namely stocks trading, options trading, cryptocurrencies trading, social trading and artificial intelligence could bring Robinhood Markets to 12 billion USDs in annual revenue, compared to the current 3.4 billion USDs trailing annual revenue and with net profit margin of around 25 % to 3 billion USDs in annual profit compared with the current 1.8 billion USDs of trailing annual profit, according to Wolfteam Ltd.'s projections and estimates.

In addition, Goldman Sachs and Morgan Stanley are undervalued at circa 250 billion USDs of market capitalization of each. Goldman Sachs and Morgan Stanley's intrinsic values are closer to 400 billion USDs each, according to Wolfteam Ltd.'s projections and estimates. 

In short, the US brokerage industry is yet to grow into its current full potential, in Wolfteam Ltd.'s view. 

Why Private Equity Asset Raising Has Stalled?

 

In the last two years leading private equity, private credit, real estate asset management firms like Blackstone, KKR, Apollo, Carlyle, Ares, CVC, etc. have encountered certain difficulties in raising new capital.

They have either raised lower than planned new funds or stopped raising capital for some funds, whatsoever.

The reason is twofold, according to Wolfteam Ltd.'s analysis.

The leading private equity, private credit, real estate asset management firms like Blackstone, KKR, Apollo, Carlyle, Ares, CVC, etc have invested large part of their assets under management in artificial intelligence, AI related investment themes like data centers, infrastructure, energy production and online merchandise assets like distribution centers. Many market analysts and investors seem to think that the AI trade is satiated and we may be at or close to a bubble, which stalls any new investments to AI, which hurts the private equity firms.

In addition, many investors in private equity funds like pension funds, endowments and insurance companies have hit their limits to the sector. This also suppresses new investments to private equity firms.

That said, private equity, real estate and private credit asset management firms remain a hot investment sector.

 

 

What Could Derail The Stock Market Rally?

 

The US stock market rally could be stopped in its tracks by a policy error on the part of the Federal Reserve, sudden realization of investors that stocks are way overvalued or regulations that could force banks to account for some assets in a different way.

A fourth reason is trouble in the shadow banking sector, in private equity, private credit and real estate that is, according to Wolfteam Ltd.'s projections and estimates.

All these reasons for a stock market crash seem far away, but the probability of them happening is non-negligible at about 10 % to 20 %. With sudden geopolitical events able to raise this probability markedly.