Is the AI Trade DEAD? The FULL AI Stock Thesis Break Down.

An in-depth analysis of the current AI semiconductor boom reveals a complex landscape, with some experts predicting continued exponential growth while others caution against an impending bubble. A recent six-page report, which has garnered significant attention, attempts to reason through the logic behind these questions, offering a perspective that warrants closer examination.

The "Two S-Curves" Argument: A New Form of Growth?

The report posits that the current AI buildout differs fundamentally from past technological expansions, such as the internet buildout. In the internet era, revenue growth was primarily driven by the number of users multiplied by a flat fee, leading to a single S-curve of adoption. However, with AI, they argue for two S-curves: one for the exponential growth in the number of people using AI, and another for the exponential growth in the "tokens" or usage per user. This multiplicative effect, they suggest, justifies a longer and more robust hardware rally than previously seen.

While this argument presents an intriguing perspective, a critical point of contention arises regarding the nature of token usage. Even if individual usage scales exponentially from, say, 10 tokens to 10,000 tokens, the value creation is questionable due to the rapid depreciation of token costs. Furthermore, there's a practical limit to how much an individual or even an enterprise truly needs to interact with AI. The cost of providing these tokens is plummeting, and the overall value creation that can be charged for token usage is likely to be constrained, potentially anchoring the perceived exponential growth.