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Is there an AI bubble? What is the AMAMA fund?

October 6, 2024

Is there an AI bubble or an AI boom?

Who knows? Probably a combination of both. The technology sector seems overvalued with a  bubblelicious level of speculation related to artificial intelligence (AI). Open AI's launch of ChatGPT on November 30, 2022 wa an AI milestone waking up investors and clever business story tellers about how much money can be made integrating AI into human society. 

Human civilization began with fiction, improved with science, and is now realizing the many promises of science fiction. 

The AI Revolution promises to be more significant than the Industrial Revolution and the Agricultural Revolution combined. While the Agricultural Revolution and the Industrial Revolution changed human society, the AI Revolution may end up changing not only society, but also the very nature of humanity. We are of course referring to transhumanism and freeing life from the shackles of evolutionary biology to be replaced with artificial life powered by advanced technology. 

The release of ChatGPT in November of 2022 began an AI boom that may turn into a bubble. There will be many winners and even more losers. Maybe the queen companies of AI have not even been founded yet. These companies may be the ones developing the next generation of AI robotics and AI as a service or utility. AI will be the new electricity. The robots and drones will be the new appliances. We'll see. 

While it is impossible to tell which companies will win and which ones will lose, it is always fun to pick a few. Today we are picking five companies that we think will continue finding ways to make money from digital technology and AI in the next 25 years through the year 2050. 

The 5 companies that we like the most are the following: Alphabet, Microsoft, Apple, Meta, and Amazon (AMAMA). These 5 companies should be 5% of your portfolio. An allocation of 1% to each company would be nice. 

To be sure, the AMAMA companies are all technically overvalued today. However, we think that they will continue finding ways to grow and make money in the 25 years to come. Below some additional information including a brief definition of ket metrics.

  • Trailing Twelve Months (TTM) revenue is a company's total revenue over the previous 12 months (last 4 quarters independent of calendar year). 
  • TTM price-to-earnings ratio (P/E) ratio: Current share price divided by past TTM earnings from the previous four quarters. It's what investors pay for every dollar earned.
  • Forward price-to-earnings (P/E): Current share price divided by forecasted or predicted earnings per share (EPS) over the next 12 months. 
  • Forward price-to-earnings growth (PEG): P/E ratio by the expected earnings growth rate. A PEG > 1 is generally considered overvalued; PEG = 1 is fairly valued; and a PEG below 1 is considered undervalued. 

The AMAMA Fund 

Here's our Creatix recommendation: 

Invest 5% of your portfolio in these five technology companies: Alphabet, Microsoft, Apple, Meta, and Amazon (AMAMA). 

Allocate 1% even to each company. Buy fractional shares so that you can invest a fixed amount every week. Once you can invest $5 daily / $25 week / $100 month on these five stocks and have them represent 5% of your monthly investment portfolio, you'd be at a good level. It would mean that you are investing $2,000 every month of $24,000 a year. The vast majority of your portfolio should be invested in low cost, well-diversified, exchange traded funds (ETF) that mirror broad index funds. 

Below is a quick rundown on the AMAMA companies.    

Alphabet

Alphabet sells advertising, information technology services, and electronic devices through platforms such as the Google Search, Google Cloud, Google Workspace, Android, Chrome, Gmail, Google Drive, Google Maps, Google Photos, Google Play, Google Play, YouTube, Google Chromebook (laptop), and Google Pixel (smartphone). The company was incorporated in 1998 and is headquartered in Mountain View, California.

  • Market Capitalization: $2.06 T
  • AI "bubble" market cap increase: 171%*
  • TTM Revenue: $328.28B
  • TTM Price/Earnings (P/E): 23.64
  • Forward P/E: 21.82
  • Price to Earnings/Growth (PEG): 1.15

Microsoft

Microsoft Corporation sells software, devices, and computing services including the Windows operating system, the Office and 365 application suite, MS Teams, SharePoint, LinkedIn, Github, Xbox, Azure, Bing, OpenAI, and other cloud computing and intellectual property licensing products and services. Microsoft was founded in 1975 and is headquartered in Redmond, Washington.

  • Market Capitalization October 6, 2024: 3.09T
  • AI "bubble" market cap increase: 168%*
  • TTM Revenue: $245.12B
  • TTM Price/Earnings: 35.26
  • Forward P/E: 31.82
  • Price to Earnings/Growth (PEG): 2.41

Apple

Apple sells smartphones (iPhone), personal computers (Macs), tablets (iPad), wearables (Apple Watch), headphones (airpods and Beats), TV streaming (Apple TV), payment services (Apple Pay), credit card services (Apple Card), fitness programs (Apple Fitness+), and other accessories (e.g. Apple Vision Pro). Apple Inc. was founded in 1976 and is headquartered in Cupertino, California.

  • Market Capitalization October 6, 2024: 3.45T
  • AI "bubble" market cap increase: 153%*
  • TTM Revenue: $385.60B
  • TTM Price/Earnings (P/E): 34.53
  • Forward P/E:  33.93
  • Price to Earnings/Growth (PEG): 3.11

Meta

Meta Platforms, Inc. sells advertising hosted on its social media and messaging platforms Facebook, Instagram, Messenger, WhatsApp, Reels, and Threads. Meta also sells virtual reality or metaverse devices such as Meta Quest. The company was incorporated in 2004 and is headquartered in Menlo Park, California

  • Market Capitalization October 6, 2024: $1.51T
  • AI "bubble" market cap increase: 536%*
  • TTM Revenue: $149.78B
  • TTM Price/Earnings: 29.73
  • Forward P/E: 27.99
  • Price to Earnings/Growth (PEG): 2.19

Amazon

Amazon sells consumer products, advertising, subscription services (Amazon Prime), multimedia entertainment (Prime TV and Twitch), electronic devices (Kindle, Fire tablets, Fire TVs, Echo, Ring, Blink, and eero), and cloud computing services (AWS). Amazon.com, Inc. was incorporated in 1994 and is headquartered in Seattle, Washington.

  • Market Capitalization October 6, 2024: $1.96T
  • AI "bubble" market cap increase: 199%*
  • TTM Revenue: $604.33B
  • TTM Price/Earnings: 44.69
  • Forward P/E: 39.39
  • Price to Earnings/Growth (PEG): 1.41
*Market capitalization increase since OpenAI's release of ChatGPT in the last week of November 2022. 

Are the AMAMA companies already overvalued?

Yes, the AMAMA companies are overvalued already. As noted above, four of them have almost doubled in value, and one of them (Meta) quintupled in value, in the 22 months since the launch of ChatGPT by OpenAI on November 30, 2022. 

There will be a deep market correction at some point in time. However, in the long run, chances are that these five AMAMA companies will keep finding ways of adding value to their shareholders. If you start buying them now on a conservative and fixed manner you will benefit from dollar cost averaging. In the long run, by 2050, you will happy that you invested in the five AMAMA companies. 

Now you know it. 

Live well. Die better. Enjoy.

www.creatix.one

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