History is About to Repeat Itself

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History is About to Repeat Itself

If there’s an argument being used against AI being a bubble, that’s the phrase “AI is not like the previous technologies.” But as legendary investor Sir John Templeton once said, “the four most expensive words in the English language are: this time it’s different.“

And the truth is, investors are so blinded by the AI craze that they aren’t making even a remote effort to look back in history to assess the similarities between the current state of the market and previous bubbles.

But what if I told you that, decades ago, this was the exact way investors were behaving, and the results were catastrophic?

Luckily, if you put in the effort, it’s clear which metric will define whether the bubble pops. Beyond that, we can also use the lessons from history to know how the pop will play out.

Today, we are answering just that. Because the truth is, we don’t need the bubble to be real; we just need enough investors to believe it is.

Let’s dive in.

History doesn’t repeat itself, but it rhymes.

Mark Twain knew what he was talking about more than 100 years ago, in that history tends to repeat itself. But as another legendary investor like Warren Buffett once said: “What we learn from history is that people don’t learn from history.”

So in the spirit of Buffett’s warning, let’s look at history to understand better what is going on today.

Because if you think we are in a unique market, boy, are you wrong.

Is there a bubble?

“There is nothing new on Wall Street. There can’t be because speculation is as old as the hills. Whatever happens in the stock market today has happened before and will happen again.”

People these days can’t stop talking about the AI bubble. The idea is running too deep already, to the point that institutions like the International Monetary Fund (IMF) and the Bank of England have both basically confirmed its existence.

Perhaps even more surprisingly, incumbents like Jeff Bezos and Sam Altman have both shared the view that we're in a bubble, arguing that people are essentially investing in terrible ideas (Bezos) and that an extraordinary amount of money will be lost (Altman).

But what is a bubble, really? It’s hard to say because definitions of a bubble are like opinions; everyone has one.

Bubbles are often defined from the perspective of valuations; if stocks appear very expensive relative to their earnings, we just assume they are bubbly. But there is no hard threshold that determines if a stock, or an index, is in a bubble, so this is kind of a flawed metric that is heavily shaped by your own narrative you want to base the analysis on.

And while It’s hard to disagree companies like Palantir or Tesla, both with prices well over 200 times their earnings (PE ratio > 200, meaning people are valuing the company at 200 times its current…

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