The Wasted Bull Market

"The worst bull markets are the wasted bull markets." The Audacious American Edge: When Shares Become Currency (July 16, 2025)

This line, perhaps one of the most resonant we have written, feels like the right place to begin. Today’s article is different as we try a different format. Many of our readers have joined this journey recently, and while this piece is not a nostalgic flip-back or a cheat clip show, it is a moment to take stock. We will not offer a mushy recap of past themes. Instead, we will use some of our foundational quotes as anchors to re-examine our core ideas in the fierce light of recent events. This note will therefore have more links than usual; they may break the flow, but we hope the connections they build prove useful.

“In the relentless sprint of AI evolution, yesterday's revolutionaries can be today's afterthoughts.” — The Breathtaking Pace of Change (June 4, 2023)

When a rally is relentless, the mind wanders to ghosts of cycles past. Yet, to see today’s world through the lens of 1999 is to miss the plot entirely. The scale of the numbers has changed, and not just in terms of size and capabilities of generative AI models. At a recent dinner hosted by President Trump, attending CEOs discussed future capital expenditure plans exceeding half a trillion dollars. The week also featured headlines surrounding the achievement-oriented, yet still trillion-dollar, proposed compensation for Elon Musk. These are not just figures; they are signals of a world operating on a new nominal plane, a world where the very architecture of the economy has been redrawn.

“Innovation is increasingly becoming the domain of well-funded giants rather than scrappy startups.” Innovation in the GenAI Era: A Shift Away from Garages (July 2, 2024)

Decades of outperformance by the largest firms have built a corporate inequality that awaits its Piketty. The dismissal of a landmark antitrust lawsuit against Google’s Chrome browser this week may feel like another victory for the giants in their drive to become bigger. However, the real, structural drivers of the innovation era are different. Size compounds. Access to cheap equity compounds. Scale compounds. Money-making innovation in this era is heavy, capital-hungry, and built for those who can spend and learn at speed. The giants are turning similar, and competing fiercely against each other regardless of their presence at the same dinner table this week, with some at risk of being devoured, but this is still a world where the giants are courted and supported with policies and subsidies, and not those lower down the rungs.

"The burden of proof cannot be mere quoting of history." Software: A Glass Half-Empty Analysis (March 18, 2025)

The worriers waiting for a 1999-style crash overlook the profound difference in the economic climate. They miss that we live in a nominal world. Even those grasping the disintermediation of past winners—the application layer firms—struggle to grasp the new realities. Twin tectonics of economics and technology forge a shifting mosaic no past pattern maps. Brief discussion of that inverted macro past must precede decisions: wait for correction or join innovation where fundamentals balloon astronomically.

A Macro Backdrop Without Precedence

“It's time to move beyond the easy, old habit of cyclical pattern-matching.” — Macro That Matters (September 29, 2024)

The crash of 1999 was born in a world of top-down deflationary pressure. Governments, particularly in the U.S., enjoyed robust fiscal health and even surpluses. Globalization was in its spring, a powerful force driving down the cost of goods and labor. Technology itself was a deflationary engine, making everything faster and cheaper. In that environment, the excesses of the stock market were a fire fueled by dry tinder. When the bust came, it was swift and brutal, a sharp correction in a world where prices were already inclined to fall.

“History is not just repetition; it's a story of progress, of the firsts and the lasts.” — Cassandra 1: The History Seekers (July 17, 2024)

Today, we live in the opposite world. The economic currents flow in a different direction. Fiscal and monetary conditions are distinct and dynamic. Trade barriers and rising taxes create upward cost pressures. The most telling sign of this new era is the stubborn persistence of corporate pricing power. We see it everywhere: two neighboring restaurants, both with empty tables, will both raise their prices rather than compete for a larger share of a smaller pie. This is the new normal, a world where companies hold the line on price, even when volumes soften.

“Pricing power is the new macro—everything else is commentary.” “We’re witnessing a bizarre bazaar with few ‘Sale’ signs.”  — Macro That Matters (September 29, 2024)

This phenomenon is most pronounced in the innovation sector. The recent earnings season was a masterclass in nominal growth. Across the board, tech companies delivered strong top-line and bottom-line numbers. This growth was often achieved not through surging volumes, but through the simple, powerful act of raising prices. In a world where costs are rising, companies are passing them on to consumers, who are ultimately paying the price. This is the nominal flood, and it changes everything.

The Great Flip Few Saw Coming

“Hardware complexity has skyrocketed while software development difficulties have collapsed.” — Hardware/Software Flip: When The Servant Is The Master (July 10, 2024)

From our earliest days, we have argued that the generative AI era is fundamentally different from the internet era. The shift from syntax-based code to natural human language has unleashed a force of "instant copyability." In the past, a great software idea could create a dynasty. Today, it creates a dozen copycats before the week is out. The application layer, once the seat of power, is now a chaotic arena of fleeting advantages. Business moats, once carved in stone, are now drawn in sand.

“LLMs are becoming Killer Apps themselves by turning into App Killers.” — LLMs: App Killers or Killer Apps? (October 20, 2024)

This is no longer a fringe view. A year ago, the software layer’s sluggish growth prompted anxious questions about a potential AI bubble and the infamous "$600 billion question" on returns. Now, the consensus is shifting. Analysts and investors are beginning to accept that the application layer is not the prime beneficiary of this revolution. Its role has changed from king to conduit. It is a vital part of the ecosystem, but the enduring value is accruing elsewhere.

“Costs are real, while pricing is a policy decision.” — The AI Pricing Models (September 3, 2023)

Yet, here is the twist that ties it all together. Even in this hyper-competitive software landscape, the major players are still managing to grow. They are doing so by flexing their pricing power, delivering high single-digit or low double-digit growth on the back of sharp price hikes. This reinforces the central theme of the nominal world. Even in a sector facing profound structural headwinds, the ability to raise prices provides a powerful buffer. This is the critical difference from 1999, a lesson written not in history books, but in today’s earnings reports.

No One Trusts Korean Memory Makers

“Everyone has developed a narrative to justify large corporates trading at deep discounts to book value.” — The Korean Valuation Duality: A Tale of Growth without Wealth Creation (December 5, 2024)

This logic of pricing power and structural advantage seems to apply almost everywhere, with one baffling exception. As our long-time readers know, we must now take a brief, almost compulsive detour into the curious case of the Korean memory makers. In the entire global innovation landscape, this is the one corner where every positive announcement is treated as a prelude to disaster. Any sign of success from Samsung is immediately framed as a looming catastrophe for SK Hynix, and vice versa.

"The valuation spread isn't rational; it’s habitual." — U.S. Analysts’ Temerity vs. Korea/Taiwan’s Timidity (July 11, 2025)

The market operates on the bizarre assumption that these two giants, like bitter cross-town rivals in many popular sports, are locked in a suicide pact, destined to destroy each other in a relentless war for market share. This stands in stark contrast to the view of NVIDIA, which faces a swarm of powerful competitors from Trainium (Amazon) to Trillium (Google), Maia (Microsoft) to MTIA (Meta). When the evidence emerges, as seen in Broadcom’s results last week for the implications for AMD, some stocks move downwards, but the incumbents are not corrected every time an aspirant announces a plan or a development. Of course, the Korean memory makers are not granted the same trust of rationality. Oddly, the market seems to believe that Micron, the third player in memory, is run by sensible people, while the two Korean leaders are perceived as hell-bent on mutual destruction, run by salespeople negotiating with the chip makers.

“Value unlocking often requires more than mere actions; it also needs words!”  — The Hidden Power of Hype: What Korea/Taiwan Giants Miss (August 7, 2024)

We do not share this view, particularly given the absurdly low valuations of these companies. Our fantasy solution is a simple one: the CEOs of Samsung and Hynix should have a televised dinner, perhaps with the Korean president, and just shake hands. The signal alone might unlock immense value. But this is a fantasy, as it touches on a deeper issue we have written about before: the staggering inability of some Korean technology giants to grasp the strategic value of a lower cost of equity in the world we now inhabit.

Capex: From Dread to Delight

“One cannot construct a skyscraper with each floor funded with a new funding round.” — Innovation in the GenAI Era: A Shift Away from Garages (July 2, 2024)

One of the most profound changes we have witnessed is the shifting perception of capital expenditure amongst non-US investor communities. We have believed from day one that the strongest business moats in this era are built with concrete and silicon, not just clever code. Innovation that cannot be easily copied requires massive, sustained investment. Yet, until recently, this view was met with skepticism in Asian markets and frowns from analysts. When Chinese giants like Alibaba or Baidu announced AI investments in earlier quarters, post-result commentaries were dominated by concerns about the drain on profitability. Until recent times, the giants that appeared conservative on capex and worried about an AI bubble on the sidelines were favored.

“When facts change, we change our justifications.” — When Facts Change, We Change Our Justifications: The DeepSeek Revelation (January 30, 2025)

That has now flipped. As was clear in Alibaba’s recent results, capex announcements are no longer a red flag in China; they are a statement of ambition. The bigger the number, the more the market cheers. This is not the same as the bubble of 1999, which was defined by a glut of quantity, like fiber optic cables to nowhere. Today’s capex is overwhelmingly focused on quality, on pushing the frontiers of what is possible. This, in turn, grants immense pricing power to the producers of cutting-edge technology.

“The spoils belong to the attempter—the rest read headlines.” — To the Attempter, There Might be Spoils (January 26, 2025)

Even Apple, the most notoriously capex-shy of the tech titans, is slowly being drawn into the race. The market’s verdict is clear: companies that hoard cash and opt out of this investment cycle are not being prudent; they are choosing to be left behind. In this new world, you cannot innovate on the cheap. Money-making innovation requires spending money.

The Reflexive Loop

“It is far better to endure the periodic folly of bubbles than to exist in a cautious stasis.” — The Audacious American Edge: When Shares Become Currency (July 16, 2025)

This brings us to our conclusion. The super-charged innovation we are witnessing is not happening in a vacuum. It requires a specific, fragile ecosystem of financial conditions. It needs relentless optimism. It needs a low cost of equity, which is just another way of saying high valuations. It needs markets that reward companies for raising and deploying capital, not punish them for it. For now, we have that environment.

“The answer to market chaos isn't better timing; it's better patience.” — Standing Up for Long-Only (February 13, 2025)

But there is a reflexive loop at play. If these financial tailwinds were to fade, whether due to economic or policy shifts, the impact would be felt not just in stock prices, but in the pace of fundamental innovation itself. This is not the same as the bust of 1999, but it would be a cyclical winter nonetheless, a cold spell that would be both unnerving and profound.

“Constraints fuel creativity, and efficiency becomes the cornerstone of progress.” — A Quiet Surge: The Rise of Chinese AI Innovators (November 30, 2024)

This note, anchored by what we hope are some of our more resonant thoughts, must acknowledge a singular debt. For every issue discussed, our article on counting raindrops  could have served as the primary source, perhaps more than all others combined. That note, like this one, attempts to summarize our turbulent times. To conclude, there are undeniable risks of over-optimism and over-investment. The dangers of over-valuation and over-concentration are real. But equally true is the profound under-acknowledgement of the drivers that keep nominal revenues and profit numbers relentlessly pushing higher.