Marks argues bubbles exist because overpriced markets can become more overpriced before eventually reverting.
“And if it were true that every overpriced markets reverts and becomes fairly priced, then we would never get a bubble because they would stop going up here.”
Marks notes that while the internet transformed society, 99% of internet stocks from 1999 are worthless.
“Can you imagine the world today without the internet? And yet I imagine that 99% of the internet stocks that came out are worthless today.”
Marks says current AI frenzy has not reached bubble-level mania yet.
“And I don't detect that level of mania at this time, so I have not put the bubble label Right.”
Marks judges that AI investing has not reached the critical mass of mania needed for a bubble.
“But to me, it just hasn't this is a judgment call. And to me, it just hasn't reached that critical mass of mania.”
Marks defines bubbles primarily as psychological excess where no price seems too high.
“To me, the main ingredient in bubbles is psychological excess. There's no such thing as a price too high.”
Marks says he has not labeled current AI frenzy a bubble because mania has not reached critical level.
“And I don't detect that level of mania at this time, so I have not put the bubble label Right. On this on this incident.”
Marks is certain AI will irreversibly change society but questions whether its implementation will prove excessive in scope and financing.
“And the question is, will the implementation prove to have been excessive in scope and in in the way it's financed?”
Marks says nobody has explained how AI will change the world or become profitable despite its power.
“I've never heard anybody tell me how AI is going to change the world. We know it's a powerful force. Can think, it can process data.”
Marks argues bubbles never form around prosaic industries like timber because outcomes are too predictable.
“You're never going to have a bubble in paper stocks or timber stocks. It's too prosaic. People can say, well, we can tell how many houses you're going to build.”
“I always make this point that the bubbles are very, very around something new because the imagination is untrammed and it can go off in a flight of fancy.”
Marks says nobody can explain how AI will change the world, unlike the internet bubble where the vision was clearer.
“I've never heard anybody tell me how AI is going to change the world. We know it's a powerful force. Can think, it can process data.”
Marks notes a company raised money at $50 billion valuation without disclosing its product as a warning sign.
“And at the time I was writing the memo, she was out trying to raise more money at a $50,000,000,000 valuation for a company that wouldn't say what its product is.”
Marks cites Thinking Machine Labs raising two billion dollars at twelve billion valuation without disclosing its product as bubble behavior.
“some woman left OpenAI, started a company called Thinking Machine Labs, went out to raise money, and she said this company is going to engage in AI, but I can't tell you what we're going to do. It's a secret. And people gave her $2,000,000,000 for a sixth of the company.”
Marks argues if AI exuberance does not produce a money-losing bubble, it will be the first such innovation.
“if this technological innovation with its exuberance doesn't produce a money losing bubble, it'll be the first. And now it could happen. You know, you can't rule these things out.”
Marks lists historical technological innovations from railroads in 1860s through internet in 2000 as comparisons.
“So the technological innovations I'm talking about, let's just for a starting point, let's say the railroads back in the 1860s And then radio in the nineteen twenties, the automobile, computers in the nineteen fifties and sixties, internet in 2000.”
Marks says every prior technological bubble saw too much capital flow in, too much infrastructure built, and investors lose money.
“In every case, too much capital flowed in. I think it's fair to say too much infrastructure was built and prices were paid that were too high.”
Marks wrote that if AI exuberance doesn't produce a money-losing bubble, it will be the first technological innovation not to.
“So I wrote in a memo recently this year, and I think it's true that if this technological innovation with its exuberance doesn't produce a money losing bubble, it'll be the first.”