▶ Full Post Text
The current AI narrative of why AI datacenter stocks such as Nvidia, Oracle, Taiwan Semi, etc. are a "sure bet" and "safe investment" is that "we can only grow from here" and "We will need more datacenters in the future, not less."
While this may be true, it doesn't necessarily mean committing to X stock at Y price is the correct financial decision over more conservative and broad market instruments. Our goal is not to be right about the trend, it's to take the highest expected value action with our money to preserve wealth and mitigate risk. Here's some historical perspective of what happens when the narrative is hyperoptimistic and the trade is hypercrowded.
2026: "Will we need more datacenters in the future, or less?"
The hypothesis we're testing right now.
2022: "Will software-as-a-service and digital enterprise platforms become more deeply embedded in business in the future, or less?"
Software was the "sure bet" for years, as a sector it's now down 23%. In the same time period, M2 money supply expanded by 5.6% and the S&P increased by 26%. **This is despite SaaS & digital enterprise becoming more deeply embedded, not less.**
2008: "Will real estate be more expensive in the future, or less?"
Real estate was the "sure bet" for years, as a sector it's now up 68% since the pre-crash peak. In the same time period, M2 money supply expanded by 219.5% and the S&P increased 378%. **This is despite the fact that real estate did become more expensive in the future, not less.**
2000: "Will the internet become more commercialized in the future, or less?"
We know how this one played out. Nasdaq took 16 years to recover nominally and 21 years to recover inflation-adjusted from its previous ATH. During that time period, M2 money supply expanded by 341% and the S&P increased 422%. **This is despite the internet becoming more commercialized in the future, not less.**
1990: "Will commercial real estate and institutional debt structuring be more utilized in the future, or less?"
Savings and Loan crisis wipeout. 1k+ bankruptcies, real estate markets dropped 20-50% for years. $24 billion of 1990 dollars in bailouts. Junk bonds wiped out by bankruptcies, severe losses for investors and pension funds. **But yes, CRE and debt structuring became more utilized in the future, not less.**
1970: "Will corporate conglomerates and multi-national business operations be more common in the future, or less?"
M&A powered by debt was seen as an infalliable strategy for earnings growth. S&P collapsed 36%, many companies' stocks lost 90%+ of their value and then went bankrupt, $39 billion of 1970 dollars in bailouts. Bear market and high inflation lasted an entire decade. **But yes, corporate conglomerates and multinationals became more common in the future, not less.**
There's way more examples, but I think the point is pretty clear, being right about the long term trend does not entitle you to asset performance relative to when you bought it and at what price. Business cycles and credit cycles happen. Remember that our goal here is to make money and not to be proven right about our predictions.