I have crossed the halfway point of my 5th decade in the business of Wall Street. It is tempting to suggest one has seen or lived through it all, but that would be an error. Our world today across a spectrum of social, political, weather, and economics is a “kitchen sink” of the unfathomable, unthinkable, amazing, and mystical, all occurring very fast. Artificial Intelligence (Ai) encapsulates this kitchen sink of our current world. Our optimism and concerns of Ai follows:

It would be prudent to separate the environment of Ai from the valuation of AI stocks. The former carries the potential to positively transform our lives in the years ahead. Not unlike how the Internet has been transformative the past 25 years.  The latter as it relates to the valuation of Ai stocks, not unlike the tech/ telecom/dotcom stocks of the early Internet years is the focus of our concern.

The ratio of price to earnings (PE), sales (PSR), and cash flow (PCF) for the profitable Ai companies is now extreme with little downside protection nor margin of safety.

Cross vendor financing or circular financing was previously used by the dotcom leaders a generation ago, it did not end well. Another term for circular financing is fraud.

Total capital expenditures (capex) allocated to build out Ai since the release of ChatGPT (4Q22) is over $900 billion.

The actual cash flow revenue is a fraction of the build out cost thus far; It does not get better. Bain Consulting's 2025 Global Technology Report forecasts an $800 billion cash flow loss by 2030 for the AI industry writ large.

Anecdotally I have corrected ChatGPT twice: once for inventing a brother Daniel the Lane Family does not have. The second for erroneous information on a film, director, and release date it's simply made-up. It corrected itself within 3 seconds when challenged. Let's add Laziness to the list of our Ai concerns.

It's being documented that the Ai generative models: ChatGPT, Gemini, Anthropic, Perplexity, et al, now have fabricated over 5000 law cases that never existed. Let's add Lunacy to the list of our Ai concerns.

Gemini, Google's answer to ChatGPT has decided to block inquiries on health questions concerning our political leaders. Let's add Manipulation to the list of our Ai concerns.

 

What Inning is This?

On October 27, 2025, game three of the World Series lasted 18 innings. We have done well with our initial allocation to the Ai sector the past few years. In late 2024 and through this year we have de- risked portfolios away from this Ai exposure based on the valuation and price of the Ai sector companies. We are not market timers, but with humility we have a track record of noting excess valuations in the past: Japan in 1990; DotCom in 1999; and Real Estate in July 2005. We prefer to be early on calling these excesses versus late and apologetic. We don't know if we are in the 4th or 8th inning as it relates to the Ai stocks. Do we go 18 innings? It is possible, but it could equally be a stretch to embrace that outcome. No one truly knows.

On an optimistic note, we know of individuals software coders, small and big businesses that are using aspects of Ai to improve efficiency of their process, performance and deliverables to their customers. We are told it is a continuous training and refining process with constant stops to ensure integrity towards the outcome.  This behind the scenes aspects of Ai, is what holds the greater promise for a significant improvement in productivity to make our lives better in the years ahead.

To summarize there are many aspects of Ai starting with form: Narrow Ai, General Ai, Superintelligence Ai. Focused technologies of Ai: Machine learning, Deep learning, Language and Image processing. Large Language Models (LLMs) are what drives the ChatGPT, Gemini et al. They really have replaced search as to, speed, education, insight, and direction. However, since LLM can also stand for Laziness, Lunacy, and Manipulation one needs to be very suspect when using these forms of Ai.

I did not use Ai to write this commentary. There are Ai tools to check this claim. I did use Ai for tidbits of information within this commentary as to the date of Game three 18 innings, Bain’s consulting report, et cetera. At present using these forms of Ai are akin to engaging a new business contact or, socially dating a person.  You like the process, but don’t really trust it until the fullness of time unfolds.

Recalling my February 1999 warning ( reprint included below postscript) of the DotCom mania entitled Internet stocks: The Clockwork Orange of Finance we were 13 months early to the bubble break of March 2000. However, we welcomed being early to the 87% decline in the NASDAQ and the total vaporization of many dotcom stocks by October 2002.

 

 

 

Post Script :

To recast, Stanley Kubrick’s 1971 movie A Clockwork Orange was a film where the “nutjobs” (an acceptable word back in the 70’s) took over running the village. The movie was an adoption from a book by Anthony Burgess.  The author Burgess was critical of the movie that emphasized a violent and dystopian World, while overlooking the positive themes centered on free will and redemption. Specifically, Kubrick omitted the last chapter of the Burgess’ novel that ended on a more hopeful resolution of personal growth and change for the good.  There was no movie sequel to A Clockwork Orange. However, post Anthony Burgess passing an unfinished manuscript entitled The Clockwork Condition was discovered.  An uncompleted attempt to square the record on the philosophical and cultural themes between the novel and the movie.

NOTE: The above postscript are my words derived from information off Perplexity, an Ai model.  Remind me please to double check that information 😊

 

 

Internet Stocks

Reprint of The Advisor Network Journal Article of February 1999

"The Clockwork Orange of Finance"

By Kevin P. Lane

 

 

I am entering my nineteenth year in the securities industry and with no exception the present mania centered in internet stocks is unique. In fact a review of previous speculative bubbles leaves little to compare to the aggregate valuations of these “.com latelys”. Perhaps one exception would be the valuation of downtown Tokyo real estate at the peak was supposedly greater than all of California – nine years later it is a fraction of its manic level. At least it is tangible, buildings and dirt – assets that have no meaning in a virtual world.

 

Before we address some of the anecdotal points and supporting numbers let me add that the internet, by itself, is a wonderful evolving medium. It will and is changing relationships, commerce, access and the control of information. In some aspects the internet is an enigma: clearly it has created jobs but in the end it is a job killer and highly deflationary. The I-World breaks down barriers of control but, in turn many individuals seem to lose control due to the speed, overabundance of information – or the compulsive aspects of being on-line.

 

The contradictory nature of this new medium is endless. In the end the Internet will be the one lasting catalyst to our movement from an industrial base economy to an information-technology economy – in one word, it is here to stay; we wish we could only say the same for most internet stocks.

 

The statistics are most alarming. The NASDAQ Index supports a P/E ratio of 100 on a base of deteriorating earnings. However it at least has earnings. The internet stocks are largely addressed as a multiple of sales or revenues. These are not traditional multiples of 5-10 times revenues but reach for 100 times or greater. In the few instances where they do have earnings, the P/E ratios run 500-800 in the case of AOL and YAHOO. E-Bay, an electronic flea market went from an IPO of 18 in late September to over 300 at this writing.

 

After reading a Financial Times article on Jeff Bezos in late October, I was astonished to learn that he went from an idea in 1994 to a billionaire in 4 years, as the market cap of Amazon.com was 6 billion at the time of this article. My initial reaction was two-fold 1)good cheers for Jeff for having a good idea and even greater luck and 2) that this valuation of Amazon.com could not hold. It didn’t, in less time than it took my quarterly Waste Management bill to arrive Amazon.com surpassed $18 billion in market cap. I have used Amazon’s service, they do a great job at a great price; however, they lose money on every sale. The only person who (previous to the present day holders of Amazon) thought that was a sound business plan was the Catskills Comedian, Jackie Mason, “I’d make it up on volume.”

 

Anecdotally, the following in conjunction with the above mentioned valuation levels should give one not a reason to pause – but run, get out, don’t look back, stay away!

 

• The Girl Cash Collectors (Five 5th Graders) won the Arizona Stock Market Game by turning $100,000 into $165,000 in 10 weeks. (Top holdings AOL, YAHOO, and Amazon.com)
• An individual was recently quoted in a National Business publication to the effect that, “ I used to follow Warren Buffett but now I listen to the Internet message boards and I am doing better”.
• An analyst who covers Amazon.com raised his price target to $400 per share- it was $250 at the time- in the next 12 months. It reached that target in less than 2 weeks.
• SkyMall’s (airplane catalogue company) Chairman appeared on CNBC touting his stock which ran up to $35 in a couple of days. He in turn sold millions of dollars at the $35 level- and with the proceeds bought out the remaining large shareholders at prices from $5-$7 per share.
• Marketwatch.com was priced at $17 IPO and promptly went to $130+ in two hours.
• There is universal insider sales at all high tech companies, from the established to the newly formed. The only reason the numbers on the most recent new issues haven’t peaked is the 144 lock up rule – when that release date hits in 1999 and beyond, look out.

In conclusion, the internet mania and the present valuations are historic. They make the nifty fifty in 1973 look tame. The Bio-Tech bulge in 1992, a mere speck. Keep in mind that of the 100 or more bio-tech new issues brought to market in 1991-1992, less than half are with us today. For those who counter, well AOL is here to stay – we don’t disagree only suggest, yes, but at what price. Avon Products was one of the nifty-fifty 1973 stocks to own, reaching a high of 163. At the low in 1974-1975 Avon sunk to 18. Twenty-five years later Avon has continued to ring up sales, make payroll and pay taxes but has failed to even come close to 163. Twenty-five years is a long time; a great milestone for a marriage or employment but for Internet stocks it may as well be infinity.