Artificial Intelligence Will Solve Everything...Right?

Earnings season is about over and today I wanted to reflect on some of what we saw in an extraordinary month of trading. But I’m going to do so through the lens of the artificial intelligence investment boom that has buoyed the market so far this year. I’ll get to my take below.

The Asymmetric Portfolio did have a nice recovery this week, helped by a nice quarterly report from On Holding.

In Case You Missed It

Here’s some of the content I put out this week. Enjoy!

Artificial Intelligence Fixes Everything

One of my takeaways from earnings season is that consumers are starting to reduce their spending, but the market doesn’t care because…AI (something, something). I covered some of the economic side of this dynamic last week.

This week’s OpenAI announcement, followed by Google I/O, which focused on consumer AI products, made me reconsider this even more. I came away thinking there’s a lot of potential for artificial intelligence when we figure out real use cases, but we haven’t figured out use cases yet!

Are you using AI to write your emails?

Do you use AI to create presentations?

Is AI doing your work for you?

Is an AI your personal assistant?

Probably not. And that’s the problem. Today, the tens of billions of dollars being invested in artificial intelligence are going into infrastructure and party tricks. But the economic benefit is likely years away.

The best analogy is the internet in the late 1990s. The market knew the internet was the future, but didn’t know exactly what would win or how companies would make money. Sound familiar?

Fiber networks were built, internet service providers exploded, Pets.com IPO’s on attracting a growing number of eyeballs, and the Nasdaq 100 went up nearly 10x in a few years. And then it all crashed back to reality and a long, slow recession.

The problem wasn’t that the internet was a fad, it’s that valuable use cases weren’t yet established in 1999. Google was only founded in 1998, Facebook launched in 2004, and Shopify was started in 2006. And those were desktop giants. Mobile-first companies like Uber and Square wouldn’t be started for years and Netflix didn’t start streaming until 2007.

There’s often a long lag between when the hype cycle starts and when value is created.

Is that where we’re headed again? Probably, but the ride will be bumpy.

This week, we learned hedge funds that are known for building hype and then dumping shares on retail (you and me) are selling NVIDIA, the hottest AI stock.

Over the last few months, we have also learned that consumers are pulling back.

• Home Depot’s same-store sales dropped 2.8% in Q1 2024.

• Target expects a 3% to 5% drop when it reports Q1 results.

• Walmart’s same-store sales were up 3.8% in fiscal Q1 of 2025, but remember Walmart was reporting record results in 2009 when the economy was tanking. When people are trading down to Walmart and eating fast food instead of at sit-down restaurants, we should take notice.

And yet, the price-to-earnings ratio for the S&P 500 is 27.6x, at or near historic non-recession highs.

I don’t know what is going to rock the cart, but we learned in the 1970s, late 1990s, and late 2010s that any economic pullback will be magnified by an expensive stock market.

I’m still investing, but I’m selling stocks that trade for high multiples from companies that aren’t growing (Apple). And I’m buying companies trading below the market’s P/E multiple and with lots of cash on the balance sheet (Crocs).

Earnings are telling us a very different story than the market’s move higher and eventually the earnings story will win.

Disclaimer: Asymmetric Investing provides analysis and research but DOES NOT provide individual financial advice. Travis Hoium may have a position in some of the stocks mentioned. All content is for informational purposes only. Asymmetric Investing is not a registered investment, legal, or tax advisor or a broker/dealer. Trading any asset involves risk and could result in significant capital losses. Please, do your own research before acquiring stocks.