AI Bubble?

Welcome to the Schmoozeletter Blog. Your source for weekly water cooler wisecracks from the world of finance. If you have an opinion different than mine or a topic you want to hear about, let me know!

This week, we’re talking about:

An avid Schmoozeletter fan and second in line to the soup throne hit me up this week with a topic.

He said, “AI bubble question mark.”

I assume he meant “AI bubble?”, as in “Are we currently in an artificial intelligence bubble where the price of AI-related stocks is overinflated and will soon pop and come crashing down?”

But I’m not one to question the royal family, so I didn’t ask for clarification.

This has been very topical lately.

We’ve had several viral doomsday AI articles like Matt Shumer’s “Something Big Is Happening” and Citrini Research’s “THE 2028 GLOBAL INTELLIGENCE CRISIS.”

YOU KNOW IT’S BAD NEWS WHEN IT IS IN ALL CAPS.

The gist of these is: Panic.

And panic Mr. Market has!

Top to bottom. Large cap to small. Anything technology or software that has so much as a hint of AI disruption is getting blasted in 2026.

Take a look at what companies and sectors are red and what are green this year in the market:

Trillions of dollars are leaving tech and headed for the “safe havens” that sell stuff you can touch like Walmart and Costco.

Good luck replacing the $1.50 hot dog and soda combo, you silly robots.

Shit…

So to answer the question of whether AI-related stocks are heading for impending doom, let’s take a look at a smattering and play everyone’s favorite Schmoozeletter game:

Bubble Trouble

Each one of these three stocks sold off for a different AI-related reason. But all of Mr. Market’s AI concerns basically fit into one of the reasons represented by these three.

Everyone knows the best place to get financial information is the website formerly known as Twitter. So let’s get the breakdowns from some fintwit geniuses themselves.

Microsoft – MSFT

Sold off because:

Spending too damn much on AI!

$100 Billion?!

That’s too damn high! They’ll never recoup that.

Oh, their AI-y cloud department is growing at 39% per year?

And they have $625B in AI-y cloud department revenue that they haven’t put on their books yet?

And the stock is trading at one of its cheapest valuations in the past five years?

Is MSFT in bubble trouble due to its hefty AI spend?

If you’re going off cool memes I just made: Yes.

If you are going off actual financials:

No.

Duolingo - DUOL

Sold off because:

AI can make this app in five minutes!

Zoomer can totally vibe code this. Any company selling an app, software, analysis platform, or anything on the internet comprised of ones and zeros can be replaced by AI.

LEGIT going to ZERO.

And this total boomer Mr. M.en here has the gall to ask this incredibly stupid question:

Uh, hey moron. People are leaving the app. Zoomer has seen ’em. Zoomer went to a coffee shop and asked some bussinators if they were duolingomaxxing anymore. They said, are you delulu? Lingo lost the rizz.

This is an extremely compelling narrative. Until you… uh… look at the data for these companies.

DUOL reported earnings this week and:

Their active users went up.

People… it seems… aren’t leaving the app. In fact, more people are joining the app.

Revenue is over $1B. Net income more than doubled from last year. And they have over $1B in cash against zero long-term debt.

The company says they expect to continue growing at double digits next year.

And the stock price was annihilated. So much so that I briefly contemplated selling everything and putting it all in DUOL on Friday morning when it was approaching the low 80s.

Then somebody beat me to it, and it shot up 15% in about 15 minutes.

Even with the spike at open, the stock is down over 80% from its highs to a meager $4.5B market cap based purely on the doom that AI will replace everything.

While I’m sure some companies with apps and software will get replaced by AI, it also needs to be said:

Just because you can do something doesn’t mean you will.

Just because you can have AI build a language-learning app doesn’t mean all of DUOL’s users will use your app instead.

Just because you can have AI figure out some of your taxes doesn’t mean all the CPA firms in the country will quit using INTU products.

Just because you can ask AI where you should get dinner doesn’t mean everyone will stop ordering food with three clicks of their phone on UBER.

It reminds me a lot of the narrative around Google last year, when it was half the price it is today:

People aren’t going to use Google Search because ChatGPT exists.

Very compelling. And Mr. Market panic-sold GOOG hard when all of the data said that Search was growing and Google was making money hand over fist.