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Ken Griffin built Citadel into one of the biggest hedge funds on the planet and he just said the quiet part out loud. Speaking Tuesday at Citadel Securities Future of Global Markets Conference in New York, Griffin said investors are almost certainly in an AI bubble. A bubble almost certainly. Well, so so the big picture is there's there's almost certainly bubbles within this moment in time and and any radical transformation of our economy is generally intertwined with a bubble.
Now, we've been hearing this type of talk a lot recently, but when a guy who runs the hedge fund that big says the b- word, you don't really need a second opinion, unless he's talking his book, but that's a story for another time. So, here are some of the numbers that back up his statement. AI related stocks now make up 49% of the S&P 500.
That's bigger than the.com peak, bigger than Japan in 1988, bigger than 1929. And we know how all those parties ended. Only the railroads in 1881 got bigger. So essentially, your diversified index fund is basically one giant AI trade with some other stocks tagging along for the ride. Here's the twist, though.
Griffin claims he is still bullish on AI. His argument, bubble winners lead for decades. His example, Amazon. He even wishes he kept his shares, which might be the most relatable thing a billionaire's ever said. Now, the math on that regret. $1,000 in Amazon stock at the 1999 top was worth 56 bucks by 2001, down 94%.
It took almost 10 years just to get back to even. A decade of staring at a stock that made you feel like an idiot. Today, that $1,000 will be about 48,700. Patience pays eventually if you survive the middle. The bubble was real. So was the winners after it. Question is, which AI names are which? Let's see what the options say in this edition of Options Math Check.
Interesting claim, especially from a guy who runs a hedge fund. And hedge funds can actually benefit a lot of times from either direction. So maybe more than anything, he's looking for some volatility. But nevertheless, I think it makes sense to think about the things that make up a bubble. And uh let's take a look a couple in the platform here and stick.
So first one and certainly not saying this stock is a bubble stock but a lot of people have referred to Micron and the move that it's made over the last couple of years right pretty strong move in the stock and the shares and so I think looking at that makes sense just to pay to pay attention to how some things have happened in here and some of the moves particularly with the options.
So, one of the things you always want to look at, and let's just take um let's go to January so as not to really get short-term, but just for the time being, we'll look at January. You always want to look at volume and and it's something you pay attention to. This is something you can just do for a stock that you trade day in and day out.
We often talk about flows. We often look at how things are doing. You guys have definitely heard a lot of times from even Chris Veio when he's looking at volatility and looking at volume. One of the things to pay attention to is call volume. Right now, traditionally at Tasty, we didn't look at a whole lot of call volume, but we have monitored that at times in specific names.
And I think that's something that you can sort of tune into and take a look at options volume as it trades. Chris Veio does this quite often, right? And so, let's just look at January options just to see. Now, one of the things you pay attention to in bubble is when volume activity seems out of the ordinary, right?
When you see, let's just say 10% out of the money or 20% out of the money, which in this case, let's go $100, right? Up to a,000 for January looking at volume on any given one day. And this is literally just one day of of volume in action. But still, if you see some really crazy upside volume, that tells you something, right?
that might say there's a lot of people speculating in a stock while it's moving to highs. Now, to be fair, recently we've seen somewhat of a pullback in many of these AI names. As a matter of fact, the first time we saw a pretty decent size pullback was in June, and we saw that pullback last for at least a solid month.
I would say that that's not particularly bubble activity. Now, this is just in the medium term. I think when Ken Griffin is talking about the bubble, he's talking about the move that we've seen going back a couple of years. And yeah, I mean that's fair, right? Like when we take it back to even 2025, Micron was a $96 stock.
And I think that's the part that makes it hard for people to say this is not a bubble or how can we not be in a bubble when you see stocks moving this far this fast. However, there is demand that is I think a little bit different um from what people talk about in the.com bubble. there is some strong demand.
Does that mean that these stocks can't pull back? Certainly not. I mean, these stocks certainly can pull back at any given time if the demand slows down, right? And you're hearing about the demand for AI buildout. I think that's the other thing that's keeping the demand alive. If all of a sudden, I hear that they're not building as many AI data centers.
Well, then all of the sudden, I think that's when you see things change. Bubble, there was a lot of demand for websites. Everything was being moved to the internet. Did the internet cease to exist? No. We've used the internet more than ever before. But maybe it was ahead of its time. And I think that's what he's saying.
Case in point in the example, Amazon. That was a company that traded at a really high valuation at one point in time, but probably got ahead of itself. You saw it get devalued in a major way, and now look where the stock is now. And this is after a split, right? So things do change over time. But from the option standpoint, um you you do want to pay attention to, let's just say, near-term, uh volatility, but also near-term calling, right?
And that's where we do see a lot of activity in names like this. Hard not to though, because those are actually cheaper options. They're cheaper upside plays, and I think that's what people are always looking for, or cheaper downside plays. But if I pulled this up and I saw only call volume and literally hardly any put volume, that would probably concern me.
I'd be like, well, everybody's going one direction or playing for one direction, and I don't think that that's where I really want to be. So, I think that's something to pay attention to. The other thing is how much implied volatility trades overrealized volatility. Now, we always look at implied volatility rank, right?
That's our metric for looking at how crazy volatility can get, but you can always look at historical volatility, too. I mean, that tells you just as much, if not more, than implied volatility. Is the stock moving enough to justify the current volatility? And there's plenty of ways you can get free data on historical volatility compared to implied volatility and make an informed decision.
It is worth noting that just about all of these names have volatilities in the 50s or 60s or even higher. Um, when you look at a name like NBIS, which is related to the AI trade, 80, right? I think these are the names you got to be careful playing too heavily. Certainly, they're worth paying, right?
especially as as options players is certainly worth playing. But I think you just have to be careful because 80 vall is 80 vall man and 80 vall is kind of similar to a biotech. And would you really be crazy in trading a biotech? No. But do you really want to invest a lot of money into it thinking that it'll never fall or gain?
No. That's what you trade them for, right? Because they have those big volatility swings. And I think that's what we've seen a lot recently. So just understanding how the volatility looks in a lot of these names, understanding they have come from a long way. Understand that there is this thought process out there about a bubble.
I think that determines whether or not you want to invest if you will or trade them in a certain way. I love trading them. Um, investing is a whole another conversation, but just from the trading standpoint, if you look at the volatility, you look at how much implied is trading over realized, that kind of gives you an idea of the frenzy that might be around any given one stock.
And that kind of can help you determine how you want to trade it. Do you want to play for a near-term upside move or do you want to start to play for the downside, which is expensive as well, right? That's another thing to keep in mind. But looking at call volume I think compared to uh over the last 20 or 30 days on any regular basis looking at volatility on a basis of 30 days versus a year out and how that compares right I think is another thing to keep an eye on and that'll help you determine which stocks are bubble and which stocks are worth holding on to and of course earnings right that was the big thing between now and the dot bubble a lot of these stocks literally didn't have any earnings or weren't making any money.
And I think that's something to keep an eye on. Eventually, we're going to be able to determine which AI stocks are here to stay and which AI stocks we might never see again. But the options will help you determine that. Thanks for watching this episode of Options Math. If you like this video, please like and subscribe to all Tasty Live videos.
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