I've never felt right about the framing of "destroying wealth" when stock prices go to some new number. If anything, the word "reflecting" seems more applicable?
Indeed, it just means that the really expensive thing that people put a lot of time into building turned out not to be as valuable as expected. The wealth isn't destroyed, it's being discovered not to exist; a vanishing mirage.
Also: "The stock market is the only market where people complain when things go on sale." -Warren Buffet
If you're in a "selling stock" part of your life I understand, but if you're in a "buying stock" part of your life it's worth reflecting on the quote until you can shake the "recent price action IS investor psychology" out of your head.
Globally, pension funds hold approximately $5–7 trillion directly in the top US tech stocks (the "Magnificent Seven" and adjacent AI infrastructure).
Also in the last couple of years many pension funds have moved money into Private Equity and Private Credit to chase higher returns and they're the backstop for all the off-books AI datacenter buildout debt?
At the same time, retail investing has grown a lot in the last 10 years. A lot of people treat their portfolios as a line-only-goes-up bank account because that has been mostly true for a while.
Yeah. Investing in stupid things can absolutely destroy wealth. But it's not the correction that does the destruction; that's just when people notice it has been destroyed.
Indeed. If it is all a Ponzi/bubble there was no wealth to begin with.
More important for the wider economy is how much liquidity it destroyed and the mayhem it will do in the bond markets.
But, since the top 10% of American savers (including almost all of US Congress) put most of their savings in stocks they will get a massive bailout. It will make the 2008 Wall Street bailouts look like pocket change. I bet they will say it's for national security or some other lame excuse.
Every right-thinking plutocrat knows to use catastrophized language for any serious drop in his paper wealth. Otherwise, how would he argue for a fat government bail-out?
It's so blatantly tied to who's likely to lose the most money. The unreal part to me is that the major news outlets are so much more obvious in their framing now.
AI has a lot of rich people riding on its success, and this time's different for, IMO, two major reasons...
- First, the companies most invested in AI are perfusing it everywhere. Many parts of these big businesses, if not the business as a whole, is invested heavily in the success of LLM-based products. Microsoft is probably the poster child for this, where you can't use practically any of their modern products without copilot or some such being shoved in your face. OpenAI and Anthropic are both companies whose existence is predicated only by a viable LLM-based product. Nvidia and (as of their last-week's announcement) Micron are both now also heavily invested in the success of this technology, though they're also surely not the only companies in the hardware sector to be following this path to some degree.
- Second, the actual individuals behind these companies are the world's richest people, and much of their fortune comes from stock in these companies, and loans taken out against that stock.
They stand to *personally* lose a significant-even-to-them sum of money if the bottom falls out of this thing. If this weren't the case, I'm absolutely certain we wouldn't be seeing as much reporting about how an AI crash would hurt the average household. When smaller crashes happen (even those that affect more average households), it's inevitable, or it's good for the economy in the long-term (it's a correction, after all -- how could that possibly be bad?), or it's the consequence of people's personal choice to invest one way or another, but because the uber-rich were spared, it's *not really that bad.*
This is a disgusting turn in the state of journalism. I don't pretend know what comes next, or how this can be remedied. Crowdsourced news is as prone to manipulation as "traditional" centralized news, so that's not it, and I don't think people have the depth of knowledge to use something purely fact-based (like bellingcat) for every domain of day-to-day life (which is less an effect of the US education system being in continuous decline over decades, and more an effect of the cognitive load it takes to be familiar enough with everything to be able to draw reasonable conclusions about it.
It would be like SVB all over again. Small governemnt, anti bailout, pull yourselves up by your bootstraps tech CEOs on TV crying and begging for someone to cover their losses.
I don't think that is likely this time. Injecting capital to cover losses doesn't bring back the forward looking valuations so stock prices would remain down anyway. Gov isn't going to fund losses for like Microsoft.
- A drop in nominal values on the same scale as the dotcom bust would wipe out $16T, or 8% of American household wealth. Foreign investors would lose $7T.
> The richest Americans own the vast majority of the US stock market, according to Fed data. The top 10% of Americans held 93% of all stocks, the highest level ever recorded. Meanwhile, the bottom 50% of Americans held just 1% of all stocks in the third quarter of 2023.
(the vast majority of wealth for the non wealthy in the US is someone's primary residence real estate)
A rule of thumb suggested by one study is that every $100 drop in stock market wealth leads, on average, to a $3.20 drop in consumer spending. Under such an assumption, a dotcom-style crash would cut American consumption by about $890bn, or 2.9% of GDP.
This hurts the 'middle class' the most - as they have their savings locked up in growth stocks like AI.
Costs to the elderly would be socialized (we'd pay for medicare for more people); the youngest don't own stocks.
But you can imagine seeing knock on effects in housing prices, and massive increases in credit defaults as people who bought things thinking their portfolio was worth X, all of a sudden can't afford them when their portfolio is worth .5x
It's going to be bad when it happens - think DotCom crash. But if then crypto and other asset classes crash on top of that, you could have a real crisis.
Tesla is currently sitting near a $1.5T valuation with $1.47 earnings per share based entirely on AI vaporware. The adjustment to reality cannot come soon enough.
I find the relationship of the general public with company ownership fascinating.
1) Can just pick and choose buying parts of the best, most well functioning companies without having to figure out anything or do anything, what a life.
2) Kinda hate on people who run those companies
3) Also kinda hate on big companies in general
4) Owning stocks is somewhat cool though. Unless it's not, then it's destruction of wealth.
Are there any tools to take your existing porfolio and play out scenarios like this? Eg positions in 100+ stocks aggregated from 401k, Roth, 529, etc and see best guesses as to how I'm exposed?
Stock market crash? I believe less and less a 1929 style crash is possible. Tesla, Uber, hell, look at GameStop still... The market is rigged. The US and the upper class needs numbers go up, the numbers will go up.
The only way an adjustment to such stock prices would come is if US power and dollar vanes. There is a chance now this will happen, but I guess it will still take a long time.
That doesn't seem plausible to me, though not because I don't think the upper class would be above such behaviour. If investors try to prop up the price of a company, they'll end up buying more over-priced shares and potentially losing far more money in the long-term, so it's probably only worthwhile if they believe that it's just a short-term blip. Also, the investors that don't believe that it's a sensible long-term bet will be offloading their shares to the people who are willing to pay top price for them, so someone is going to end up holding a lot of expensive stock that's not performing.
As long as potential feels bigger than reality, investors keep pouring in.
Case in point: The dot-com crash came only after the web matured and reality finally hit the limits of its potential.
By that logic, an AI crash would likely come only once AGI arrives and the true boundaries of its impact become visible. Or, the progress towards AGI seems to stall.
Some of this analysis seems a bit lazy for the Economist.
Apple is in the "AI-related companies in the SP500" group? Microsoft too? Tesla too? Amazon too? But... if these companies' AI efforts fail, 95%+ of their revenues would be unaffected. So big stretch to paint them with that brush.
Nvidia, OK that one is obvious. Meta, Alphabet, OK.
But MOST of the companies listed in that chart are only "AI companies" in the sense that EVERY tech company building peripheral AI into their products is an AI company.
Case in point: if Apple stock goes 'on sale' as part of an AI-bubble sell-off, are you really deciding whether or not to buy based on their AI-ness?
Tesla for example: its stock price has fluctuated down 50%, then up 100% (relative to the dip), in this year alone. Clearly, that's market speculation, not capital + earnings. So how much of that speculation is AI-dependent? Depends on how much coffee investors drink before reading Musk's latest tweets, I guess.
Apple is HEAVILY invested in AI, but you're right: it's earnings are dependent more on iPads than AI right now.
> ...are you really deciding whether or not to buy based on their AI-ness?
But since then the other countries learned that the US government could weaponize their USD holdings if they don't align. Central banks started accumulating gold to counter this.
Also, debt market is not the same as it was 5 years ago, Japan now has inflation (and they hold the biggest bag of US debt).
To add to this, USD lost 10% of its value this 2025 according to the DXY index. To be fair, it pretty much went to what it was worth before 2022, but the Fed has to be careful anyway.
Many things happened since 2020. It's almost 2026.
The hard part is reigning that spending in during non-crash years (see the uproar over removing the temporary COVID subsidies) in a way that is not political suicide. At the Federal level, there is zero incentive to not run a deficit.
I'm hopeful that the AI bubble popping would bring back money flowing to other industries. If you're not an AI company right now it takes a lot to get investor cash flowing in.
I have a buddy who has been an entrepeneur all his life. He renamed his first company to Name-Dot-Com just before the Dot-Com Crash; a short jump in investment followed by a period where he couldn't get his calls returned, and he was forced to sell.
So my point is: "angel investors" in startups seem to be a really "ADHD", shiny-distraction-oriented bunch. And that has a huge impact for smaller companies.
In the 1990s and early 2000s, many of the companies leading the stock rally were not making much money, if any. This led to very high P/E ratios for some companies because share prices kept going higher, even when earnings were lagging well behind.
While Nvidia’s stock price has risen roughly 1,000 percent over the past three years, from $17 to $180, its earnings — the actual money it is making — have increased even faster. This means the stock is arguably cheaper today than it was three years ago, said Stacy Rasgon, a stock analyst at AB Bernstein.
But the circular financing throws those earnings into doubt. There's no question that Nvidia makes fantastic products, but right now a lot of its customers are buying those products using borrowed money, or money invested in them by Nvidia itself. Its highly questionable whether those earnings are sustainable.
In the case of nvidia, the price is based on expectations of future revenue, not current. And the future numbers are clouded by a web of opaque circular deals with customers.
But Nvidia also has some less than transparent arrangements to support their customers in buying their goodies.
Which is not to say they aren't making money, it's more that in hindsight we may discover that the p/e ratios were not the primary measure we should have paid attention to...
Nvidia is selling shovels, widely believed to be a better business than panning for gold. So...
* You can't generalize from Nvidia to companies spending all the money on hardware, electricity, and labor without making a profit.
* It's also worth asking if Nvidia will keep having those earnings if all the AI companies crash. Unsure about this. At least there's a bunch of pent-up demand from people wanting GPUs for other reasons.
* Also, there's the $100B they invested in OpenAI...
I'm just waiting for the next massive knee jerk reaction in the stock market to start seriously investing again. AI is not going anywhere even if there is a bubble but people are going to make stupid narratives on it being over for Nvidia and tech.
I think the real issue comes down to how these companies are being valued. As the article points out, "the top 20 firms account for 52%, with the same number deeply invested in AI." This concentration makes the market more vulnerable to any major setback in AI's growth. But the question remains: Are these valuations justified?
As I mentioned in earlier writing [1][2], many AI stocks are priced assuming the tech will deliver far more immediate and consistent returns than history suggests. These speculative assumptions are similar to the dotcom era, where companies like Yahoo and Pets.com were valued based on hype/expectation rather than fundamentals. If AI doesn't live up to the hype, the consequences could be even worse today imo, given how much more of American wealth is tied up in stocks.
vanschelven|2 months ago
mitthrowaway2|2 months ago
smallmancontrov|2 months ago
If you're in a "selling stock" part of your life I understand, but if you're in a "buying stock" part of your life it's worth reflecting on the quote until you can shake the "recent price action IS investor psychology" out of your head.
willvarfar|2 months ago
Globally, pension funds hold approximately $5–7 trillion directly in the top US tech stocks (the "Magnificent Seven" and adjacent AI infrastructure).
Also in the last couple of years many pension funds have moved money into Private Equity and Private Credit to chase higher returns and they're the backstop for all the off-books AI datacenter buildout debt?
paulddraper|2 months ago
You have exactly same assets as before. The businesses of which you are a fractional owner have the same fundamentals.
But other people won't trade other assets for yours at the same rate.
biophysboy|2 months ago
cobbal|2 months ago
seanmcdirmid|2 months ago
alecco|2 months ago
More important for the wider economy is how much liquidity it destroyed and the mayhem it will do in the bond markets.
But, since the top 10% of American savers (including almost all of US Congress) put most of their savings in stocks they will get a massive bailout. It will make the 2008 Wall Street bailouts look like pocket change. I bet they will say it's for national security or some other lame excuse.
bell-cot|2 months ago
lokar|2 months ago
_verandaguy|2 months ago
AI has a lot of rich people riding on its success, and this time's different for, IMO, two major reasons...
- First, the companies most invested in AI are perfusing it everywhere. Many parts of these big businesses, if not the business as a whole, is invested heavily in the success of LLM-based products. Microsoft is probably the poster child for this, where you can't use practically any of their modern products without copilot or some such being shoved in your face. OpenAI and Anthropic are both companies whose existence is predicated only by a viable LLM-based product. Nvidia and (as of their last-week's announcement) Micron are both now also heavily invested in the success of this technology, though they're also surely not the only companies in the hardware sector to be following this path to some degree.
- Second, the actual individuals behind these companies are the world's richest people, and much of their fortune comes from stock in these companies, and loans taken out against that stock.
This is a disgusting turn in the state of journalism. I don't pretend know what comes next, or how this can be remedied. Crowdsourced news is as prone to manipulation as "traditional" centralized news, so that's not it, and I don't think people have the depth of knowledge to use something purely fact-based (like bellingcat) for every domain of day-to-day life (which is less an effect of the US education system being in continuous decline over decades, and more an effect of the cognitive load it takes to be familiar enough with everything to be able to draw reasonable conclusions about it.blitzar|2 months ago
jghn|2 months ago
brentm|2 months ago
moribvndvs|2 months ago
skx001|2 months ago
- A drop in nominal values on the same scale as the dotcom bust would wipe out $16T, or 8% of American household wealth. Foreign investors would lose $7T.
toomuchtodo|2 months ago
> The richest Americans own the vast majority of the US stock market, according to Fed data. The top 10% of Americans held 93% of all stocks, the highest level ever recorded. Meanwhile, the bottom 50% of Americans held just 1% of all stocks in the third quarter of 2023.
(the vast majority of wealth for the non wealthy in the US is someone's primary residence real estate)
anticorporate|2 months ago
skx001|2 months ago
koakuma-chan|2 months ago
epsteingpt|2 months ago
Costs to the elderly would be socialized (we'd pay for medicare for more people); the youngest don't own stocks.
But you can imagine seeing knock on effects in housing prices, and massive increases in credit defaults as people who bought things thinking their portfolio was worth X, all of a sudden can't afford them when their portfolio is worth .5x
It's going to be bad when it happens - think DotCom crash. But if then crypto and other asset classes crash on top of that, you could have a real crisis.
elzbardico|2 months ago
We will leave the bill for some teacher pension fund in Minnesota.
cramsession|2 months ago
smallmancontrov|2 months ago
cr125rider|2 months ago
jstummbillig|2 months ago
1) Can just pick and choose buying parts of the best, most well functioning companies without having to figure out anything or do anything, what a life.
2) Kinda hate on people who run those companies
3) Also kinda hate on big companies in general
4) Owning stocks is somewhat cool though. Unless it's not, then it's destruction of wealth.
jcims|2 months ago
Mistletoe|2 months ago
Just make a truly diverse portfolio and never worry. Lots of efficient portfolios explored here.
https://portfoliocharts.com/2021/12/16/three-secret-ingredie...
poisonborz|2 months ago
The only way an adjustment to such stock prices would come is if US power and dollar vanes. There is a chance now this will happen, but I guess it will still take a long time.
ndsipa_pomu|2 months ago
jghn|2 months ago
You don't think anyone had ever tried that prior to past crashes?
lateforwork|2 months ago
Case in point: The dot-com crash came only after the web matured and reality finally hit the limits of its potential.
By that logic, an AI crash would likely come only once AGI arrives and the true boundaries of its impact become visible. Or, the progress towards AGI seems to stall.
corry|2 months ago
Apple is in the "AI-related companies in the SP500" group? Microsoft too? Tesla too? Amazon too? But... if these companies' AI efforts fail, 95%+ of their revenues would be unaffected. So big stretch to paint them with that brush.
Nvidia, OK that one is obvious. Meta, Alphabet, OK.
But MOST of the companies listed in that chart are only "AI companies" in the sense that EVERY tech company building peripheral AI into their products is an AI company.
Case in point: if Apple stock goes 'on sale' as part of an AI-bubble sell-off, are you really deciding whether or not to buy based on their AI-ness?
IAmBroom|2 months ago
Tesla for example: its stock price has fluctuated down 50%, then up 100% (relative to the dip), in this year alone. Clearly, that's market speculation, not capital + earnings. So how much of that speculation is AI-dependent? Depends on how much coffee investors drink before reading Musk's latest tweets, I guess.
Apple is HEAVILY invested in AI, but you're right: it's earnings are dependent more on iPads than AI right now.
> ...are you really deciding whether or not to buy based on their AI-ness?
Buy APL stock, or buy an iPhone?
KumaBear|2 months ago
79a6ed87|2 months ago
Also, debt market is not the same as it was 5 years ago, Japan now has inflation (and they hold the biggest bag of US debt).
To add to this, USD lost 10% of its value this 2025 according to the DXY index. To be fair, it pretty much went to what it was worth before 2022, but the Fed has to be careful anyway.
Many things happened since 2020. It's almost 2026.
IAmBroom|2 months ago
Hasz|2 months ago
https://bipartisanpolicy.org/article/the-deficit-in-a-downtu...
https://www.frbsf.org/research-and-insights/publications/eco...
The hard part is reigning that spending in during non-crash years (see the uproar over removing the temporary COVID subsidies) in a way that is not political suicide. At the Federal level, there is zero incentive to not run a deficit.
sanex|2 months ago
IAmBroom|2 months ago
I have a buddy who has been an entrepeneur all his life. He renamed his first company to Name-Dot-Com just before the Dot-Com Crash; a short jump in investment followed by a period where he couldn't get his calls returned, and he was forced to sell.
So my point is: "angel investors" in startups seem to be a really "ADHD", shiny-distraction-oriented bunch. And that has a huge impact for smaller companies.
lateforwork|2 months ago
Excerpts:
In the 1990s and early 2000s, many of the companies leading the stock rally were not making much money, if any. This led to very high P/E ratios for some companies because share prices kept going higher, even when earnings were lagging well behind.
While Nvidia’s stock price has risen roughly 1,000 percent over the past three years, from $17 to $180, its earnings — the actual money it is making — have increased even faster. This means the stock is arguably cheaper today than it was three years ago, said Stacy Rasgon, a stock analyst at AB Bernstein.
mitthrowaway2|2 months ago
lokar|2 months ago
pipo234|2 months ago
But Nvidia also has some less than transparent arrangements to support their customers in buying their goodies.
Which is not to say they aren't making money, it's more that in hindsight we may discover that the p/e ratios were not the primary measure we should have paid attention to...
scottlamb|2 months ago
* You can't generalize from Nvidia to companies spending all the money on hardware, electricity, and labor without making a profit.
* It's also worth asking if Nvidia will keep having those earnings if all the AI companies crash. Unsure about this. At least there's a bunch of pent-up demand from people wanting GPUs for other reasons.
* Also, there's the $100B they invested in OpenAI...
random9749832|2 months ago
etrautmann|2 months ago
7777777phil|2 months ago
Edit: Just read a related WSJ [3] article.
[1] https://pdub.click/2511242 [2] https://pdub.click/251210e [3] https://www.wsj.com/personal-finance/the-everyday-investors-...
Jeremy1026|2 months ago
hnthrowaway0328|2 months ago
unknown|2 months ago
[deleted]
unknown|2 months ago
[deleted]
jeffbee|2 months ago
IAmBroom|2 months ago
barbazoo|2 months ago
Also what a shit headline. There’s no wealth destroyed, it’s all just numbers go up and down. But until you sell you haven’t lost any money, have you?
smallmancontrov|2 months ago
IAmBroom|2 months ago
I have no sympathy for the uber-wealthy, but claiming no one's wealth will be affected is ridiculous.
JKCalhoun|2 months ago
throwaway984393|2 months ago
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