What stands out to me about the Jensen Huang saga is the hubris. Mr. Huang carried on an affair with a woman who represented a company that, at the very least, he had to suspect was smuggling embargoed Nvidia chips to China and yet, he took lots of pictures with her. He was untouchable. He sensed, or as he would say, he “manifested” that the witless minions of regulators and media could never lay a hand on someone so utterly powerful. The prideful Mr. Huang isn’t alone among a new world of “futurist” billionaires. Elon Musk has made endless confident predictions that have failed to come to fruition. There still aren’t millions of cybercabs on the streets, despite a long history of annual predictions of “next year”. DOGE did not in fact successfully circumvent or usurp Congressional authority to cut “$1Trillion” of annual spending. Musk, without a hint of trepidation, recently predicted that AI will bring such widely distributed wealth and abundance that saving and investing are no longer even necessary. Anthropic’s Dario Amodei’s equally economically incoherent predictions that AI would lead to historic growth amid historic unemployment look even further disconnected from reality as time passes. Many of Amodei’s acolytes believe that AI is capable of creating AI Agents with a “soul” and have gone so far as to make that case to the Pope himself.
The hubris didn’t come from nowhere. The political power of the billionaire class has not been greater since the days of John Pierpont Morgan. The sycophancy of Wall Street is now well beyond the days when Mary Meeker and Jack Grubman were fanning the internet/Telecom bubble that peaked 26 years ago.
In fairness to the bankers and research analysts on Wall Street, they find themselves in a more difficult and conflicted position than ever before. The non-bank financial companies, otherwise known as “the sponsors”, have unprecedented leverage over the investment banks. The sponsors are the owners, along with the VC firms that control a wide swath of the AI universe. If you run an investment bank or even if you are just a cog in the machinery of an investment bank, you know the companies that are owned by the sponsors and you make damn sure not to do or say anything that might upset them.
Wall Street also has no choice but to go along with the open-ended growth delusions of the new class of “rockstar” billionaire CEO’s. If Musk says that the annual TAM (total addressable market) of SpaceX is just shy of US annual GDP, just go ahead and plug that into the model. Don’t question it. Go ahead and laugh about it behind closed doors, but throw it into the model. “Everyone knows how the game is played” is the justification. The problem is that not everyone knows how the game is played. The average retail investor has no idea that the DCF’s (discounted cash flows) and price targets offered up by investment banks are just an imaginative best-case scenario. Sure, institutional investors dismiss the numbers out of hand, but the vast majority of retail investors assume these are real forecasts.
My point is not to forecast impending doom. But I’ve been around for a while. I’ve seen unbound CEO hubris in person. I was in the room and watched Global Crossing’s CEO mock a hedge fund analyst who questioned the viability of their business model in 1999. They were bankrupt not long after. I was in the room and watched Ara Hovnanian, the CEO of a big national homebuilder condescend to and belittle an independent research analyst named Ivy Zelman who had predicted significant risk to the housing market in 2007. Over the next two years, the stock fell by over 95%. Hubris and delusion are endemic to bubbles. Is this one in the process of deflating right now? I don’t know but the warning signs are consistent with previous bubbles and corrections. Risks are rising. I know it’s hard to leave a good party early and I know the pain of defensive positioning among a melt-up, but as fiduciaries, our job is to weigh risk versus the opportunity and to me, the current risks outweigh the likely opportunity.
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