“The stars could be aligning for an AI mania Bubble burst,” Win Investing wrote in June in a piece entitled, “AI Mania Bubble,” dated July 2024.
In the piece, Win Investing questioned whether the benefits of Artificial Intelligence and its real-life application are exaggerated.
“Could AI Mania, excessive and unrealistic enthusiasm for AI, soon have a reality check?” they asked.
AI mania Bubble burst is now playing out
Fast forward nearly half a year into 2024, and that is indeed what investors are experiencing as the AI mania bubble bursts.
Darren Winters points out that Super Micro, once the hottest AI stock of 2024, has a collapsing stock price.
Approximately $50 billion in market cap was slashed from the stock price since the company hit an all-time high in March, with the latest blow being the resignation of its auditor.
Super Micro Computer Inc., once a darling AI tech stock and one of the most recent additions to the S&P 500, has seen a spectacular rise and fall in 2024.
The following table shows monthly price data and YTD return for Super Micro in 2024. Note that these prices reflect the recent 10:1 stock split.
Jan 31, 2024 $52.96 86.3%
Feb 29, 2024 $86.61 204.6%
Mar 28, 2024 $101.00 255.3%
Apr 30, 2024 $85.88 202.1%
May 31, 2024 $78.45 175.9%
Jun 28, 2024 $81.93 188.2%
Jul 31, 2024 $70.17 146.8%
Aug 30, 2024 $43.77 54.0%
Sep 30, 2024 $41.64 46.5%
Oct 31, 2024 $29.11 2.4%
Super Micro leads the AI mania Bubble burst
Super Micro is a California-based company, which manufactures server and storage solutions for data centres, cloud computing, and artificial intelligence (AI). Amid the AI-hype rally, the company’s shares rallied 2,000% over two years thanks to its close relationship with Nvidia.
Large customers of Super Micro include CoreWeave, an American cloud-computing startup, and Tesla.
The AI mania Bubble bursts when investors, on mass, smell the BS and realise those elusive profits are a fantasy
In August 2024, short-seller Hindenburg Research published a report on Super Micro uncovering “glaring accounting red flags, evidence of undisclosed related party transactions, sanctions and export control failures, and customer issues.”
While claims in this report were not independently verified, one particularly alarming discovery is that exports of Super Micro’s components to Russia have tripled since the invasion of Ukraine, violating US export bans.
Moreover, around the same time this report was released, Super Micro announced it would not be able to file its annual report for the fiscal year on time, which caused its stock to drop another 20%.
AI mania Bubble burst has evaporated 50 billion dollars of investor’s wealth in just one stock, Super Micro
The losses could be steeper when the entire sector gets a reality check.
Nicolai Tangen, CEO of Norges Bank Investment Management, the largest sovereign wealth fund in the world with $1.55 Trn in assets, owning, on average, 1.5% of every listed company, has also recently taken to the stage, warning about concentrated risk in the AI stock boom.
Tangen also warned that we are heading for a period of low returns.
“The time of low interest rates is gone.
The world is a much more dangerous place”, he added Tangen.
Our fifty cents is that the end of low interest rates could be a cloud with a silver lining.
Easy money creates a climate where those near the source build phoney wealth through swindling, duping and deceiving.
Think about it, as Darren Winters points out; it is easier to bluff and blind people with science than create a real business that makes products and provides services people want to buy and also make profits. It benefits the pump and dump speculative types who ride the pump and sell the hope.
Easy money also leads to waste in the public sector, white elephant projects, bridges that go nowhere and multi-million dollar airports that have never seen a plane land.
Could this be why we have an over-inflated stock market with few companies making profits and sovereign debt investors are nervous about buying?
Back to the AI mania Bubble burst, which could be a case of fool me once, shame on you; fool me twice, shame on me
We have no crystal ball, nor are we a genius but in our lifetime, we have seen this game play out many times.
Easy money brings out the charlatans and swindlers like worms in a sweet apple tree.
When an investor gets burnt once, he can either leave the business or learn to pick himself up and move on.
The AI mania Bubble burst with Super Micro’s auditor eager to disentangle it from the falling AI star
The latest Super Micro saga is that its auditor, Ernst & Young, has resigned, stating it was unwilling to be associated with the financial statements prepared by management.
Ernst & Young had only just replaced Deloitte as Super Micro’s auditor in March 2023, shedding further light on Super Micro’s internal issues.
Super Micro has had a checked history with it being temporarily delisted from the Nasdaq in 2018 for failing to file its financial statements on time.
In 2020, the SEC charged the company with widespread accounting violations, including understating expenses.
A new auditor for companies when the AI mania Bubble bursts?
The fallen AI star Super Micro needs to find a new auditor to stay compliant with Nasdaq, or it might get delisted.
But finding a new auditor could be challenging, particularly given Super Micro’s history of accounting manipulation.