Every Generation Needs Their Bubble

November 21, 2025

“Every generation needs their bubble.”

It’s something we wrote last year after witnessing the explosive growth of AI and semiconductors stocks. GPUs computing at nearly the speed of light, or whatever speed transistors compute at. Even the quickest of them pale in comparison to Wall Street’s hype machine as the investment banks all jump in unison to tout the latest investment theme.

The bevy of themes lately seem particularly bountiful. AI, Ozempic (GLP-1s), battery technologies, uranium, quantum computing, this and that . . . take your pick. Choose wisely though. When picking holy grails, everyone knows that melting portfolios become testaments to poor choices.

As the excess liquidity sloshes around the world, the sheer number of themes have increased to match. Someone has to get the money, and there’s sure a lot of it. “A lot” being the operative word as we run federal deficits near pandemic highs . . . after the pandemic is over. Which is why the excess liquidity has to flow somewhere. Without truly productive avenues, the liquidity simply stays embedded, churning and moving from one financial pocket to another, bounded by the craps table and Wall Street. Excess liquidity acts like fertilizer to thematic weeds, every bad idea is funded, and every nonsensical venture launched. Why not? There’s money or SPACs to be had. Couple that with the gamification of gambling (i.e., Draft Kings, sports betting, Robinhood, 0DTE options, etc.), this generation is primed to speculate constantly and ever so casually.

The rising liquidity and leverage inevitably means higher asset prices, which translates to higher net worths. In turn, that net worth starts to affect the psyche. The excess liquidity also begins to find its way, seep its way to main street, unbounded by the croupiers in the casino. We are flush and this is EASY. Everyone’s brokerage accounts have added an extra zero at the end.

Well, not all of us. This is the “K” shaped economy after all. The haves are the upper arm of that “K,” pitying the lower arm. Well we did thrown them a bone didn’t we? Nobless oblige. No taxes on your overtime, but please clock-in. Still, feeling flush is where we’re at. Sure it’s limited to the upper crust, but no worries, it’ll trickle down eventually. Flush times though never last, but don’t tell that to the kids.

“Things are cyclical” you’ll say, but those words land cynical. As my son says, this isn’t the 19’s (i.e., the 20th century, the ‘99s), as if that was a whole century ago. This time it’s different.

Is it?

Every generation needs its bubble.

Every generation needs to experience their own de-generation as they ride the wave up . . . and down. In 2025, the stories being told around the campfire are different, but the hero’s journey is a well worn construct. AI and the riches that sector will bring. Fanciful words like hyperscalers, datacenter and tokenization are the passwords to enter this speakeasy of riches. Once in, we all nod knowingly about Palantir’s proprietary “ontology,” and the secrets of how Nvidia forever transformed its business to enjoy permanently high margins. Never mind that their higher margins come at the cost of someone else’s capex. If you think their customers (“MAG 6”), which comprises >60% of their sales)) won’t try to claw that back, or produce some of the chips in-house, then you don’t understand business.

Now this isn’t true if these hyperscalers can charge their customers more, but AI is in its infancy so we’re not there yet. Nonetheless, tales will be told and fortunes will be transferred. Every generation gets its bubble because every generation needs its bubble.

Younglings have never experienced it. They just don’t know. Sure the ones that’ve read any market history may know that valuations are extended, but “they don’t really know,” do they? Experiential learning is vastly different than book learning. Youth conveys profound benefits of vitality, vigor, energy, and creativity, but also a dose of irrational overconfidence and unwarranted bravery. Great if you’re training marines, but dangerous when you’re floating in bubbles. If they're in the industry, it’s actually even worse as they couple bravado with career risk. Lagging performance = flagging careers, so they hold their nose and hit the bid.

The Bubble

We are in an AI bubble. We know it. Wall Street knows it. Heck, even the founders of the companies that are building out the sector know it. First comes displacement, AI will transform everything. The narrative crystallizes. Then the boom as institutional investors dive in and buy-in. Initially it’s the intrepid, then those fearful, fear of missing out. As AI touches everything, everything becomes euphoric. A vortex of glorious euphoria that sucks oxygen out of the room leaving investors lightheaded and eager to fund anything and everything directly or tangentially related. So long as they put a “.com” behind it, it’ll go up. Oh sorry, wrong bubble, we meant “AI.”

A seemingly endless supply of capital deluges the sector. What was niche becomes the next, and everyone wants in. In business, the 80/20 rule applies, and when the hyperscalers declare AI is a must have, the 80% dutifully follow. AI comes to dominate every conference, every discussion, every analyst call. Promises get bigger, commitments get larger, and investments get grander. The financial web entangles all as equity investments and special purpose vehicles proliferate. OpenAI signs deals with CoreWeave, who signs deals with Nvidia, who signs deals with OpenAI. My spend supports your revenue, and vice versa. Around the money goes.

Brilliant right? Seed each other, support each other . . . leverage each other. Perniciously, a small equity investment coupled with a promise to buy/rent your services later allows fly-by-night companies to lever up (i.e., borrow bigly). Have collateral, can borrow. Off balance sheet debt isn’t real debt right? Well it is for somebody.

“You don’t get it.” Maybe. Nah we do . . . as if this generation invented creative accounting . . . who do you think wrote the books? You’ll eventually get to learn terms like VIEs and such. Don’t worry, before long you too will get your own Sarbanes Oxley. Every generation needs internal controls.

It’s all fine today because investors love hype and momentum, at least initially. We’re funding business models that will produce profits, just not today. Spend it now . . . and customers will come. Whether it’s a field of dreams, or a rapidly depreciating data center, the immense capital commitments are justifiable in the early stages. What happens though when obsolescence creeps in? Today, GPUs that power AI’s evolution become obsolete in 2-3 years. Doesn’t that mean your capex is really just opex? This is especially true if you’re energy constrained. The higher energy efficiency of new chips means the old chips devalue faster, and many business models revolve on running the latest GPUs to generate more tokens to survive. So while the promise of AI dwarfs that of the internet, the economic risks are likely even worse.

Unlike the internet bubble in 1999/2000, you only had to lay the fiber optic cable once, and there was lasting value. The overcapacity was eventually absorbed after the bubble bursted. So imagine having to recommit hundreds of billions every year (and more) to sustain and grow AI’s momentum. You can’t build it once hoping customers will come, you need to keep rebuilding it every few years even if they do. The pressure to show productivity and profits increases exponentially. The timeframe compresses dramatically.

According to JP Morgan, “AI related stocks have accounted for 75% of the S&P 500 returns, 80% of earnings growth and 90% of capital spending growth since ChatGPT launched in November 2022.” Capital spending is soaking up nearly half of MAG 7’s profits, fine for now, but sustainable if the revenue side isn’t growing quickly? Per McKinsey, nearly 80% of companies are now using AI in at least one business function, but >80% of companies still report no material contribution to earnings from their AI initiatives. If there’s so little tangible return, how will that stack up against the real spend? The spend crashes against the reality of insufficient revenues, large losses, and little productivity gains. That’s when shiny things start to tarnish. People begin to question their subscriptions when there’re few benefits.

Enjoy Your Bubble

AI will change the world and this vortex of euphoria will end in tears. Those two things can be true. We simply have too many mismatches today, uncertain revenue vs. exorbitant spend, rising energy costs of data centers subsidized by local utilities, or related party investments that double count and inflate values. Each one’s a domino adding to the collective fragility. We cringe to think what happens when the first one falls. Eventually we may just look back and question everyone’s intelligence, artificial or otherwise.

Given the historic quantum of excess liquidity, this time will be different. Mind you, we’re talking about the size of the bubble, not the eventual outcome. Lest you think we’re chicken littles, we’re not. The sky isn’t falling, heavens no. We’re saying that we’ll reach the heavens . . . then fall from it.

It is inevitable.

Still, if you’re a youngling . . . this is your bubble.

You can bet on it.

(Note: We are short Palantir (PLTR) at 100x revenue (or 80x or 50x, frankly it matters little at any of those numbers), and RobinHood (Hood) on the idea that every generation’s bubble is traded on their very own platforms, and once the bubble pops, their platforms tend to fall).