Hey new investors! As you learn about the stock market, you’ll hear about “hedge funds.” These are private investment pools, run by managers who use risky and complex strategies (like short-selling or using borrowed money) to chase huge returns. Their clients aren’t your average investor; they’re wealthy individuals, pension funds, and major institutionsāpeople with a lot of money to play with. Because these clients have so much riding on the line, when a stock has shot up fastāoften driven by hype or speculation rather than real profitsāthese big players will often sell some of their shares late in the year to “lock in profits” before the year ends. This sudden rush of selling can cause a stock’s price to drop, even if nothing is wrong with the company itself!
The “AI Slop” Bubble: Why Hype Isn’t Cash š«§
This year-end profit-taking is especially relevant when we talk about “bubbles,” which is when stock prices get pushed foolishly high by speculators betting that a “greater fool” will pay an even higher price later. Right now, many experts, including professors Gary Smith and Jeffrey Funk, believe the hype around Artificial Intelligence (AI) is one of these bubbles. In their article, “Opinion: Hereās one question about the AI bubble that even ChatGPT canāt answer ā Whereās the profit? OpenAI and Big Tech canāt really say,“ published on MarketWatch on 10/24/25, they point out a huge problem: the AI companies driving the stock surge aren’t making money!
Notes From Gary Smith & Jeffery Funk Article:
“Plenty of money but no earnings will cause the āAI-slopā bubble to end
badly.”The investment value of a stock comes from the cash flow it generates. Speculators, in
contrast, care not a whit for cash flow; they are focused instead on future stock prices.
This is the āgreater foolā theory: Pay a foolish price with the hope that a greater fool will
pay an even more foolish price.
A bubble happens when speculators push prices foolishly higher than justified by the cashflow. The bubble pops when speculators no longer believe that prices will keep rising ā because there is no reason for them to buy if prices are not rising. There is no reliable way to tell when a bubble will end. Driven by FOMO ā fear of missing out ā speculators may know they are in a bubble but keep speculating nonetheless.āYou have to realize weāre in Looney Tunes land and you should stay fairly close to the exits. ā¦ [But] itās a lot of fun, and you could make a lot of money here.ā – Steven
Leuthold
What is “AI Slop”? šļø
Smith and Funk warn that the reality of AI doesn’t match the hype. They report that many business projects using AI are failing and have created a new problem they call āAI slop,ā or low-quality, error-prone content. They argue that this “slop” actually reduces business productivity because people have to spend time fixing the mistakes the AI makes.
āThe investment value of a stock comes from the cash flow it generates. Speculators, in contrast, care not a whit for cash flow; they are focused instead on future stock prices.ā
Their core message to you as a new investor is vital: don’t confuse excitement with a solid investment. A company’s true value comes from the cash flow and profits it generates, not just a cool story or wild promises. When the big investors realize the profits won’t materializeāor they simply want to cash out their speculative gains before the year endsāthe price will tumble, and those who bought at the top will be stuck with losses. Invest smart and look for real cash flow, not just viral hype!
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