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Nasdaq Sinks 5% as Investors Retreat from AI Trade After Election

74 points armcat 1 hour ago 50 comments

Kevin_Flynn 56 minutes ago | parent

Election euphoria and hangovers,

Sobriety the following day,

$8,000 for a video card,

Empty boxes on Christmas day.

Can't even rhyme without AI anymore.

ddellacosta 38 minutes ago | parent

Texas: so much spent

Wind blows over clear acres

Buildouts are now dead?

Kevin_Flynn 35 minutes ago | parent

Nvidia got my money,

Micron a little as well,

AI corps with their hands out ?

they can go to hell. :}

karim79 29 minutes ago | parent

Got me a 3090

Cost me 3090

Dunno why I did dis

Guess let's try and see

bearjaws 53 minutes ago | parent

Cloudflare is a steal at $240 IMO.

Regardless of what happens to the AI models, you will still need protection a decade from now.

Not to mention the most comprehensive platform to use with AI, they will inevitably eat Lovable / Repl's lunch.

vlucas 36 minutes ago | parent

Cloudflare is not competing with app builders like Lovable or Repl though. They are the underlying infrastructure for companies like that. This is why they will win in the AI era.

Lovable is hosted on Cloudflare: https://x.com/CloudflareDev/status/2113651157721600492

estearum 31 minutes ago | parent

They're saying that it's trivial for Cloudflare to go up the stack (build Replit) while it's non-trivial for Replit to go down the stack (build Cloudflare).

dingaling911 27 minutes ago | parent

It's trivial for those providing internet links to go up the stack and cloud data centers but they typically don't.

Staying in your lane is often a better choice.

Maybe expanding through acquisition is the best of both worlds. So replit might be bought.

estearum 18 minutes ago | parent

I'm not expressing an opinion on whether they should or shouldn't.

sillysaurusx 27 minutes ago | parent

Why would either of them do either of those? They seem to be different businesses.

Network effects make it harder for Cloudflare to build Replit than it might seem, too.

estearum 17 minutes ago | parent

What network effects?

And the reason for Cloudflare to do it is because there are several (apparently) very juicy businesses to be built by slapping a chat UI and off the shelf coding agent on top of Cloudflare infra... Not saying they should do this, but the rationale is pretty self-evident.

The reason for Replit to try going down the stack is platform risk and compressing margins from competitors who also have the brilliant idea of slapping a text box and off the shelf coding agents onto Cloudflare.

s-kymon 34 minutes ago | parent

In an April 2002 interview with Bloomberg Businessweek, Scott McNealy, then CEO of Sun Microsystems, reflected on investors paying 10x revenue for Sun stock at its dot-com peak ($64/share in 2000):

At 10 times revenues, to give you a 10-year payback, I have to pay you 100% of revenues for 10 straight years in dividends. That assumes I can get that by my shareholders. That assumes I have zero cost of goods sold, which is very hard for a computer company. That assumes zero expenses, which is really hard with 39,000 employees. That assumes I pay no taxes, which is very hard. And that assumes you pay no taxes on your dividends, which is kind of illegal. And that assumes with zero R&D for the next 10 years, I can maintain the current revenue run rate. Now, having done that, would any of you like to buy my stock at $64? Do you realize how ridiculous those basic assumptions are? You don't need any transparency. You don't need any footnotes. What were you thinking?

Now this analysis is imperfect... but it's good enough.

For reference Cloudflare trades at 39x revenue

ink_13 28 minutes ago | parent

A tech stock paying dividends? It'll never happen.

dingaling911 27 minutes ago | parent

Uh.. The big guys do.

impulser_ 23 minutes ago | parent

Yeah, but they just do that for inclusion into some investment products that require a dividend.

Share buybacks are always better for the company and investors.

mikestew 17 minutes ago | parent

Ever looked at MSFT or AAPL’s dividends? It’s a token “here’s your fucking dividend, now go away” percentage. (I’m sure it’s actually to placate funds that require a dividend, but I repeat myself.)

As a retired ‘softie, my spouse still holds a fair bit of MSFT, so I just looked: $0.98…on a $540.00 stock. Yeah, we won’t be living off that in our old age.

ahtihn 19 minutes ago | parent

That analysis completely neglects growth.

Obviously you wouldn't pay 10x revenue if you expect revenue to be flat for the next 10 years.

No wonder that company no longer exists with a CEO that doesn't get that.

bryanlarsen 17 minutes ago | parent

Cloudflare's growth is capped to 100% of internet traffic. it's already at 20%.

tristanj 4 minutes ago | parent

Internet traffic is projected to grow 25% YoY over the next decade.

ahtihn 2 minutes ago | parent

What does that even mean? Revenue is measured in dollars not in % of internet traffic. They could "own" 100% of internet traffic and still have growing revenue.

s-kymon 14 minutes ago | parent

you're right on growth being excluded, which is why I said the analysis is imperfect.

brightball 19 minutes ago | parent

"In the short term the market is a popularity contest; in the long term it is a weighing machine." - Warren Buffett

Here's the valuation though. Percentage of total web traffic going through Cloudflare.

- 2016 ~3.9%

- 2017 ~5.3%

- 2018 ~6.6%

- 2019 ~7.6%

- 2020 ~11.2%

- 2021 ~15.4%

- 2022 ~19.4%

- 2023 ~18.0%

- 2024 ~18.9%

- 2025 ~19.2%

- 2026 (early) ~20.9% (with later snapshots higher, up to the mid-to-high 20s)

Combine that with consistently excellent execution and popularity, you get the valuation.

s-kymon 15 minutes ago | parent

The quote comes from Ben Graham and it goes "In the short run, the market is a voting machine, but in the long run, it is a weighing machine"

You're confusing market share with valuation. Also, look into business cycle theory from marathon asset management.

The four most dangerous words in finance "this time is different"

JumpCrisscross 27 minutes ago | parent

It looks like Cloudflare generates $633mm operating cash flow a year, up 5% for TTM from 2025 [1]. I’m surprised that’s supporting a $95bn market cap.

[1] https://finance.yahoo.com/quote/NET/cash-flow/

cj 14 minutes ago | parent

How does that compare to other tech companies?

As an example, Palantir has a similar cash flow / market cap ratio. I didn't check many others.

hnav 12 minutes ago | parent

now that they have most of the internet corralled I don't see why they won't start charging for bandwidth

tmpz22 3 minutes ago | parent

IT Sovereignty is likely to be a growing trend after the past few years - including issues of Election interference not just by governments but by individual Tech CEOs. I think a lot of particularly Europeans have realized that putting all your eggs in American jurisprudence might -not- be the best way to go.

Cloudflare has a moat but it already smells like sewage.

elAhmo 26 minutes ago | parent

Given how much people have started actively looking for alternatives, and how much spray-and-pray Cloudflare's offerings now seem with so many launches every few weeks, steal is a bit too optimistic.

MisterPea 2 minutes ago | parent

Yeah we are actively building our own alternatives due to excessive CF bills

postepowanieadm 25 minutes ago | parent

You selling?

rvz 51 minutes ago | parent

The beginning of the AI bubble's dotcom-style crash.

Accurate. [0]

[0] https://news.ycombinator.com/item?id=45960032

torlok 21 minutes ago | parent

Keep calling it. You'll get it right one day.

Personally, I think that the idea that market always recovers is so widespread right now that it'll take some serious financial hardships for people to start selling instead of buying the dip.

k__ 11 minutes ago | parent

Bought a bunch of dips in the last 5 years until I had to sell all of them at one point, because they kept dipping.

mywittyname 4 minutes ago | parent

People need a reason to route.

With the housing bubble, it was because people owned multiple homes then struggled to pay two mortgages as economic conditions degraded, and banks were willing to absorb losses if the homes were sold below the cost of the mortgage.

What is encouraging people to route from the stock market? Bond yields aren't high enough yet to encourage people to retreat from stocks, and there's no other alternative investments. Plus, so much of the S&P is held in 401ks. And I agree, economic hardship is not widespread enough for people with significant investment holdings to start selling them off to live. Those who are struggling are those who used to be struggling too (thus, no extra money for investments).

empath75 39 minutes ago | parent

Democrats are not going to try and stop AI or rein in AI. There is too much money at stake. They'll pass some regulations, sure, some data center rollouts might be blocked or modified, but they aren't going to stop the train.

tehjoker 33 minutes ago | parent

They're not even going to do that. Trump isn't going to sign that. When was the last time Congress overrode a veto or played hardball (well the Democratic side anyway)? They have no fight in them.

phainopepla2 12 minutes ago | parent

I expect more action on the state & local front than federally

scottLobster 24 minutes ago | parent

They don't have to. This particular train explodes on its own if it drop below 100 mph.

Even tepid regulation will destroy the "our TIA is the entire observable universe due to the potential of self replicating AI probes so we totally deserve 10 trillion dollars in investor capital" trade

torlok 9 minutes ago | parent

They just have to uphold the existing laws. Start prosecuting SpaceX at the fedral level for runing gas turbines illegaly.

hocusPokeUs 1 minute ago | parent

The financial aspect/discourse is for the proletariat who prefer to pretend politics and risk of military conflict do not exist.

They won't stop it because China won't stop. Politicians have to avoid any appearance of xenophobia though (and to be certain many are personally not xenophobic, just saying optics matter to them), so they talk about jobs and wealth inequality as euphemism for ground truth; we aren't secure putting all our eggs in the China basket.

Arguably screwed up there already letting chips and robotics flow offshore while we focused on increasingly useless education in developer syntax and semantics.

asdev 14 minutes ago | parent

Are we finally realizing "agents" are overrated and jagged in performance?

seizethecheese 11 minutes ago | parent

Whenever I see daily stock results I try to reframe it in a longer term. Interestingly, Nasdaq is only up ~4% YoY.

This is surprising to me, given how much acceleration there has been in AI capabilities since the same time last year. I guess costs and risks are accelerating just as fast.

rf15 5 minutes ago | parent

The problem is that the economy is kinda flatlining and only the AI bubble (that is also hoovering up other, seemingly unrelated parts of the tech sector) is what makes this number as big as it is.

ak39 4 minutes ago | parent

The Trump-Tech Bro alliance guarantees of bailouts for data centre and AI brinkmanship seems no longer guaranteed to the market.

dyauspitr 1 minute ago | parent

And is actually the only thing I’m sad about in this whole thing. Ecstatic about the blue wave sad that they’re going to restrict AI progress. It’s the future, and it would be a horrible move to curtail it.

mrinterweb 2 minutes ago | parent

As uncomfortable as this may be for the tech industry, I have been hoping for AI related stock prices to come back to reality. A market correction is a healthy thing so long as it doesn't turn into a collapse. IMO, some AI companies have ludicrous valuations considering their astronomical debt. A reality check may be healthy long term.

mschuster91 2 minutes ago | parent

Mwahaha. Hope it all crashes down and burns.

The earlier it burns the better, because every day the bubble only grows larger otherwise.