Nasdaq Sinks 5% as Investors Retreat from AI Trade After Election
wsj.com
wsj.com
There are plenty of suckers willing to gamble on a failing business (massive and rapidly growing debts, assets that can easily be cloned, no realistic path to profitability), so I don't think an IPO is off the table.
https://www.youtube.com/watch?v=0k5aVLi_yhM
When the market crashes, a lot of people lose jobs, and a lot of people die. Everyone suffers but those with money suffer the least, by far.
Don't let the term "nominal" undersell this: it's nominal inequality that locks working people out of assets and imposes upon them the need to service the (otherwise) exponentially growing profit expectations of their economic complements. At no point in the cycle is it better to be poor than rich, but the contractionary quadrant is the one where the gap shrinks.
Inequality declined temporarily during the recession, but reached new highs during the recovery.
2008 decreased inequality for a very short time, but inequality increased overall. The rich have the available assets to profit from instability and are able to ride out unemployment, for the poor a crash and losing their job can be existential.
Why would it? The wealthy people who haven’t allocated their capital to those assets that are depressed from a recession can reallocate to the depressed assets and end up even wealthier on the rebound. People with no money at all don’t have that opportunity to invest.
> At no point in the cycle is it better to be poor than rich, but the contractionary quadrant is the one where the gap shrinks.
That really needs to unwind.
However much potential energy has been stored in it, is going to turn into kinetic energy in the subsequent correction/crash.
The best time for this to happen is as soon as possible, causing the least amount of damage.
I pretty much expect the damage to be immense, though, but that is going to be unavoidable at this point. However big the bubble is, it needs to pop.
In retrospect, we will find that there were truly idiotic decisions made in blowing up the bubble, and in the aftermath the wrong people will almost certainly get hurt, because that is just what we do these days.
Their CEOs know it, and they must have their end game. I'd hate to think they'll just keep running until a hard crash. Hopefully small corrections will slow this down in a more controlled manner.
I thought HBMs are technically the fastest possible thing for inference.
Please don't rely on my [inferior] explanation and search for yourself (start here for insance: https://www.google.com/search?q=what+is+compute+in+memory+an...). Asking about a new field is much better done with AI these days, because you can get it to explain just the interests and questions you personally have, rather than a generic and boring explanation.
In short, better than HBM is not having to move data in and out of memory at all or at least not as much. The compute part in inference is much simpler than the data hauling part.
Couple of examples: Check out Axelera's Europa board (upcoming) or their Metis board (existing). Or check out Mythic.ai which FINALLY managed to raise funds in Nov / Dec 2025. Ironically, her PhD thesis had been gathering dust before that.
Open weight models such as Deepseek, GLM are just as good as the frontier closed models and already we have bank such as Revolut migrating off of frontier closed models and self-hosting. [0]
Micron is a different beast though.
Even tepid regulation will destroy the "our TIA is the entire observable universe due to the potential of self replicating AI probes so we totally deserve 10 trillion dollars in investor capital" trade
On the other hand a number of governors have changed (Texas in particular just went to a Democrat, and there are SpaceX interests there). They by definition can't prosecute on a federal level but they do hold some enforcement power.
They won't stop it because China won't stop. Politicians have to avoid any appearance of xenophobia though (and to be certain many are personally not xenophobic, just saying optics matter to them), so they talk about jobs and wealth inequality as euphemism for ground truth; we aren't secure putting all our eggs in the China basket.
Arguably screwed up there already letting chips and robotics flow offshore while we focused on increasingly useless education in developer syntax and semantics.
They will cool the AI investment well aware technology improves and we probably don't really need all our investment eggs in that one basket then
There's zero chance AI datacentres are going away, they are unfortunately a national security necessity now.
It's the "if we don't they will" thing again.
I’m convinced the best thing that happened in the nuclear arms race is the beginning of a dialogue that resulted in the start and salt treaties.
Ai obviously needs something similar.
Happily I think the power market in the US will do most of the regulating for the industry. AI is not bringing costs down for most people at the moment, or perceived to be helping people in a big way. Until there is an understanding of how it will work within society or a bit of trust built up with an industry that has mostly said "shut up and take it" I think it's reasonable to expect some conversation without jumping to "these folks are all populist stupid politicians". (In my opinion, populist, stupid politicians could be used to describe both parties so what is really changing?)
Regardless of what happens to the AI models, you will still need protection a decade from now.
Not to mention the most comprehensive platform to use with AI, they will inevitably eat Lovable / Repl's lunch.
Lovable is hosted on Cloudflare: https://x.com/CloudflareDev/status/2113651157721600492
Staying in your lane is often a better choice.
Maybe expanding through acquisition is the best of both worlds. So replit might be bought.
Network effects make it harder for Cloudflare to build Replit than it might seem, too.
And the reason for Cloudflare to do it is because there are several (apparently) very juicy businesses to be built by slapping a chat UI and off the shelf coding agent on top of Cloudflare infra... Not saying they should do this, but the rationale is pretty self-evident.
The reason for Replit to try going down the stack is platform risk and compressing margins from competitors who also have the brilliant idea of slapping a text box and off the shelf coding agents onto Cloudflare.
Cloudflare is B2B focusing on enterprise sales and underlying cloud infrastructure. These app builder companies are basically B2C and lower end B2B.
A great time to expand your offerings is when there's an adjacent offering that's producing outsized returns for someone else, is easily replicable, and which you have an asymmetric advantage on.
I think everyone knows that when someone says "it's trivial" for a business to do something, it doesn't mean it's actually trivial. Doing anything of any value anywhere is non-trivial. It's shorthand for "doing Activity X is almost certainly achievable with an acceptable outlay of risk for Business Y."
This is absolutely not true, and proof that you completely misunderstood what I said.
You took an upmarket B2B infrastructure company and compared it to a low-end B2B/B2C software company. That is a completely different type of business.
Cloudflare launches new products and offerings all the time - and all B2B within their market space. The difference is that if they did what you suggest (make a Lovable), it would put them in a position of competing with their own customers, and it would have a chilling effect on selling more infrastructure to other companies who would then fear competition as well. It's not that they can't do it. It's that it is not wise for them to do so, and it's a different type of business entirely.
Cloudflare has already started releasing products that point in this direction. Not sure how far they will (or should) go, but it's really not categorically ridiculous or impossible or nonsensical, as you're implying.
It's like VPN service. Some other party comes along and offers it at 40% of the cost, you can do that.
Lovable is more nuanced. It takes more to move away, and there's just no reason to. The unit cost of Lovable buyeres is negligible aka less buyer sensitivity
It takes decades to build the kind of network cloudflare has.
“Please mr bezos, can I connect my new trivial network to yours?” “0.08/GB :)”
Lovable is a layer of abstraction, becoming as as complex as Shopify.
"It takes decades to build the kind of network cloudflare has."
It takes literally no time. Cloudflare's network could be emulated with proper planning and enough budget, and turned on instantly. 'Servers in 300 cities' is a medium sized challenge, but most importantly, it's a relatively clear path.
On the customer side, Cloudflare (in most cases) could be replaced as quickly as individuals replace their VPNs.
Shopify for example is ' just some siple HTML and checkout' - of course not - they are dominant and growing because there's a lot of complex interdependence, switching costs are much higher, their buyers are less technical and much less likely to want to change, and building a Shopify replacement involves hitting a lot of checkmarks.
Lovable started as a wrapper just as Shopify started with something simple, but they've quickly evolved.
AWS could snap their fingers and decide to knock out Cloudflare, it's a 'Commodity Plus' that came to the fore in a time when a specific need was there, and now people are turning to it out of convenience.
Of Lovable, Wix, Shopify, Figma, Stripe - Cloudflare is in the riskiest position because of the inherent commoditizability of their tech and the relatively low switching costs.
> Cloudflare's network could be emulated with proper planning and enough budget
lmfao
Shopify's core offer is a very long gnarly tail with any number of detail and moving parts, a massive eco system of 3rd party vendors, integations, and developer community.
Their service is sticky and switching costs are high.
It would literally cost more in Claude Code tokens to hack a prototype, than to sign up and host Shopify and get 100x the features. It's $0 to build the prototype and $1/mo to literally have a full product for the first 3 months.
At the same time, Claude Code can build you a full variation of Cloudflare's core product, and with less than $1M you can scale across 300 regions if you really put your mind to it.
People are over estimating Cloudflare's moat.
The investors were right that the Internet would be important, and that Cisco would continue to be an important manufacturer of networking infrastructure. This just fundamentally did not matter because after the dot-com bubble popped, the market decided that Cisco simply wasn't worth the price it was selling at during the height of the bubble.
At 10 times revenues, to give you a 10-year payback, I have to pay you 100% of revenues for 10 straight years in dividends. That assumes I can get that by my shareholders. That assumes I have zero cost of goods sold, which is very hard for a computer company. That assumes zero expenses, which is really hard with 39,000 employees. That assumes I pay no taxes, which is very hard. And that assumes you pay no taxes on your dividends, which is kind of illegal. And that assumes with zero R&D for the next 10 years, I can maintain the current revenue run rate. Now, having done that, would any of you like to buy my stock at $64? Do you realize how ridiculous those basic assumptions are? You don't need any transparency. You don't need any footnotes. What were you thinking?
Now this analysis is imperfect... but it's good enough.
For reference Cloudflare trades at 39x revenue
Share buybacks are always better for the company and investors.
As a retired ‘softie, my spouse still holds a fair bit of MSFT, so I just looked: $0.98…on a $540.00 stock. Yeah, we won’t be living off that in our old age.
I suppose there could exist a jurisdiction where dividends are taxed less than capital gains. I would be curious to know if there are any.
ASX dividend stocks are popular with retirees in particular because the dividends are fully franked, meaning you get a credit for the tax already paid on the dividends by the company.
If you’re in a low enough tax bracket, this can turn into a tax refund if the tax the company paid exceeds your own personal tax liability.
Obviously you wouldn't pay 10x revenue if you expect revenue to be flat for the next 10 years.
No wonder that company no longer exists with a CEO that doesn't get that.
The EU is finally waking up to the fact that putting all its eggs in the U.S. basket is a bad thing. China is enormous, and they're not going to go all in on Cloudflare either for a myriad of reasons. And a bunch of folks just don't like nor want to do business with the company and its CEO.
According to these figures, their growth is levelling off.
https://news.ycombinator.com/item?id=50382740
And nowhere near enough to sustain that valuation, particularly in a market which is near the end of a bull run.
Here's the valuation though. Percentage of total web traffic going through Cloudflare.
- 2016 ~3.9%
- 2017 ~5.3%
- 2018 ~6.6%
- 2019 ~7.6%
- 2020 ~11.2%
- 2021 ~15.4%
- 2022 ~19.4%
- 2023 ~18.0%
- 2024 ~18.9%
- 2025 ~19.2%
- 2026 (early) ~20.9% (with later snapshots higher, up to the mid-to-high 20s)
Combine that with consistently excellent execution and popularity, you get the valuation.
You're confusing market share with valuation. Also, look into business cycle theory from marathon asset management.
The four most dangerous words in finance "this time is different"
I’m saying that 1/5th of global internet traffic runs through their servers. Period. Thats significant and if anything shows that there’s potentially a lot more opportunity.
I empathize with this view, however it is very hard to value businesses that have extremely high margins, and who grow revenue very quickly on existing products while they're adding additional products.
I don't think NET is a steal at 39x revenue. But at no point in the last 5 years has NET been available to purchase for <15x revenue [1].
During that time, it has had Gross Margins in the exceptional range of 70%-75%, and YoY quarterly revenue growth in the similarly exceptional range of 25-40%, which has increased in our post-AI agent software economy.
If you're a Ben Graham acolyte, you would have sat out of NET since it's IPO. However, if you're a Charlie Munger/Buffet admirer who understands the pivotal role NET plays in the software ecosystem (i.e. it's inside your "circle of competence"), you'd do well to consider the Mungerism:
"Forget what you know about buying fair businesses at wonderful prices. Instead, buy wonderful businesses at fair prices."
That still leaves as an exercise to the reader what a "fair price" is for NET, but (to me, at least) it's clearly a wonderful business.
[1]: https://www.macrotrends.net/stocks/charts/NET/cloudflare/pri...
As an example, Palantir has a similar cash flow / market cap ratio. I didn't check many others.
Cloudflare has a moat but it already smells like sewage.
Also owned a bunch of asml shares a decade or so ago. But it didn’t really move so got bored and sold. Good picks bad patience.
And frankly, they should basically be a commodity.
If anything, AWS or MS or other parties make it about as profitable as hosting web pages.
Did the election matter at all for this trade? This trade has been in the works for the last 2-3 years. This correction is required to bring down inflation - and we're already seeing T-notes dropping lower which will decrease mortgage costs in the near term and allow for more liquidity for consumers for home equity loans.
I don't understand why folks continue to click-through and "buy" these overly simplistic narratives from news outlets.
This result means that unlimited data center expansion may not be on the table, and bailouts certainly aren't either. So with the leaders crashing out the uncertainty of AI expansion is now being properly priced into the stock.
In the end, States and their utility regulators have to be on board with large data center deployments. Some GOP-led states were often friendly to builders, but their citizens realized what was happening and the backlash was going to happen anyway because of electricity prices. It's just one more nail in the coffin from a cost-of-living perspective, and the utilities hadn't yet passed the costs on to their customers (but it will pop up soon).
States that were led by Democrats were already pushing back for their own regulatory regimes for energy cost recovery, etc. Data centers were wildly unpopular at a STATE level, so it didn't really matter what was going to happen at the federal level.
This is surprising to me, given how much acceleration there has been in AI capabilities since the same time last year. I guess costs and risks are accelerating just as fast.
The earlier it burns the better, because every day the bubble only grows larger otherwise.
AI is a hyped up nothing burger? AI demand retreats, lots of vacant compute, revenues sink (and the DC hold ends up being a (small) blessing in disguise for the labs).
AI lives up to it's hype? AI demand surges, capacity is severely constrained, margins explode as inference costs soar (and the DC block ends up being counter productive knee-jerk behavior)
The only way this plays out in anti-AI favor is if people stop using AI and demand goes down. Even if it flatlines, labs can rebalance towards inference and start harvesting those huge margins.
They used to not be able to read schematics, but now they can, as well as generate and simulate. They also have made incredible inroads into CAD and reading mechanical diagrams.
Right now I can say with very high confidence that there isn't a gap in ability so much as a gap in awareness of their abilities. On top of that the next round of models has apparently made strides in all these areas too.
There won't be massive inference margins. The DCs will get built, in some other country. And in all likelihood they will continue to be built elsewhere even after the block is lifted.
Sobriety the following day,
$8,000 for a video card,
Empty boxes on Christmas day.
Can't even rhyme without AI anymore.
Wind blows over clear acres
Buildouts are now dead?
Micron a little as well,
AI corps with their hands out ?
they can go to hell. :}
Cost me 3090
Dunno why I did dis
Guess let's try and see
The models still hallucinate,
I asked AI to write this poem,
Now I have to validate.
you see that investment has parlayed. :}
Sobriety returns with the morning light.
Eight grand for a graphics card, what a price to pay,
Empty boxes beneath the tree on Christmas Day.
And here's the saddest part, I have to say,
I can't even rhyme without AI today.
Someone hack out a libreOffice plugin called "poetry bucket" that lets you paint over, or into a document.
By someone, I mean, one of you AI agents out there.
Github in 12 hours.
See you at the pub.
This time is different, my artificial fiend says. The tokens are worth it, as they spin in the wind.
My net worth goes to zero, but there should be a hero, rescuing me, sometime during a bailout in 2033.
Most voters don’t know what agents are. Many of my coworkers in tech can’t even define “agent” correctly.
So no, the world is likely not suddenly agreeing with you about “jagged performance.”
That's my attempt at a universal definition for technical and non-technical users. How does it compare?
But the elements that I think are necessary are 1) goal-oriented processing, 2) ability to use tools, 3) ability to iterate and self-correct. Along with that typically comes 4) self-talk or other hidden context during execution and 5) support for defined personas beyond system or user prompts.
That’s off the top of my head, probably not complete/correct, and definitely meant to be more technical than a non-tech person would need.
There is growing public sentiment about AI & Tech, but per exit polls that wasn't a Top 3 reason swing voters went blue (Economy, Wars, Corruption). Today's market correction is being driven by the majority in both houses of congress flipping blue. Trump and most Republican legislators were seen as broadly supporting AI / Tech and most Democrats are seen as being less supportive.
AI / Tech-friendly legislation is now likely to face a slower, more difficult path through committee and passage. IMHO, the actual impact of the political change is nowhere near 5% of company value, but outsized swings tend to happen on any adverse news when the market is already fearful they've bought into a high-priced bubble far in advance of actual earnings.
I'm actually fairly bullish on AI in the long-term. The problem is valuations have been hyper-inflated by too much speculative capital way too fast. I think today it's a bit like the Internet Bubble in 1999. The Dot Com crash needed to happen to reset valuations. But after that painful correction, by 2006 Internet-centric valuations were climbing again, except this time they were supported by actual earnings. I'm hoping AI can avoid a crash and this is the start of a more gradual correction.
The Trump administration was expected to invest massively into AI, and money invested into AI is effectively free money for AI company shareholders, that free money is priced in the stocks. With the change in direction, investments are expected to be less, which means less free money, and therefore less valuable stocks.
Here is the simplified version:
Let's say I have a company worth 1 billion dollars, publicly traded, 10 million stocks worth $100 each. I get promised $100M from the state (aka taxpayers), shareholders estimate there is about 50% chance I will actually get the money: $100M * 50% / 10M = $5. It means the stocks are now worth $5 more, so $105.
Now the government has changed, and gone are my chances to get that money, so the sock is back to $100.
AI is not going anywhere and will only grow more and more.
Doom scrolling is nothing good for society and it’s with us only because extremely well funded organisations make money from it, and has weaponised it against the general population.
I am a high voltage tester and know electricity very well.
Industry exists within the context of society. It would be great if SV tech bros could understand this reality.
I agree, but I think it's easy to conflate AI (a technology) with current AI companies (who's value is based on a bet about how that technology will develop).
I'm not predicting anything, but its perfectly plausible for Anthropic and OpenAI to suffer massive corrections if proprietary frontier models don't lead to a "a few winners take all" market.
In the same way, the internet grew a lot since the early 2000s, but pets.com did not.
Also, people don't have issue with data centers. They have issues with AI cause they think it's gonna make them unemployed, which is a real worry I can relate to. I just don't think that banning data centers or AI progress in general would help anyone keeping their job.
Remember the frenzy before the .com bubble? The nerds were finally winning! The housing one? Finally everyone could afford a house!
AI bubble? Layoffs for everyone, techbros turned fascists, impending doom somehow as a selling point. Like, wtf?
Of course the consequences were always shit, but that's a given in an economic crisis.
Accurate. [0]
Personally, I think that the idea that market always recovers is so widespread right now that it'll take some serious financial hardships for people to start selling instead of buying the dip.
With the housing bubble, it was because people owned multiple homes then struggled to pay two mortgages as economic conditions degraded, and banks were willing to absorb losses if the homes were sold below the cost of the mortgage.
What is encouraging people to route from the stock market? Bond yields aren't high enough yet to encourage people to retreat from stocks, and there's no other alternative investments. Plus, so much of the S&P is held in 401ks. And I agree, economic hardship is not widespread enough for people with significant investment holdings to start selling them off to live. Those who are struggling are those who used to be struggling too (thus, no extra money for investments).
Just like the last time before the 2022 market crash [0] and that was before you created your account.
We curtail literally millions of these "futures" every day around the world. They are called children. They are the literal future of humanity.