How likely is that?
AI Race Puts $3.5 Trillion at Write-Down Risk
Bloomberg reports AI Race Puts $3.5 Trillion at Write-Down Risk, Gartner Warns
More than $3.5 trillion of AI infrastructure spending could be at risk of impairment by 2030 as the industry’s investment boom threatens to outpace the revenue required to justify it, according to an analysis by market research firm Gartner Inc.
AI data center owners would need to generate a cumulative $8.5 trillion in revenue through 2030 to cover capital spending, financing costs and achieve a 12% return on invested capital. Yet Gartner forecasts no more than $3.6 trillion in attributable enterprise and consumer AI revenue over that period — less than half the required amount.
The widening gulf between investment requirements and projected revenue raises questions over the sustainability of the AI infrastructure boom, particularly as rapidly depreciating computing assets risk becoming obsolete before generating sufficient returns.
The implications are especially stark for specialist AI infrastructure providers such as CoreWeave Inc. and Nebius Group NV. Their business models are more directly exposed to demand for computing capacity than diversified hyperscalers like Microsoft Corp, Alphabet Inc. and Amazon.com Inc.
Gartner predicts that cost pressures and limited differentiation will force more than 80% of neocloud providers to cease operating independently by 2030.
Hyperscalers’ AI Capex Surge
AI Earnings Concentration
The AI Bubble Will Burst
There is no way the AI bubble doesn’t burst.
But what inning is this? 7th, 8th, or 9th?
If you prefer to think in years, is it more like 1997 or March of 2000?
Bianco Weighs In
If you were hoping for a more definitive answer, sorry, I don’t know and nobody else does either.
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At some point and time demand will peter out. There is the need for information. This consists of increasing our knowledge and understanding. Asking questions and analyzing data. That will always be needed. Then there is process. Ai will perform services quicker and more accurately than humans can. This includes writing software, running processes like industrial manufacturing, controlling distribution of goods and much, much more. There will only be so much of this needed as there is only so much happening now. We don’t use more than we produce. We can improve efficiency but that’s about it. Then there is controlling machinery and robots and the like. How many machines and robots are we actually going to need? Sure you can produce in ever greater efficiency but at greater financial cost. At some point the cost will outweigh the profit. Demand will meet supply. The question is the supply going to be too great for the consumption? As with many great technologies this has happened quite a bit when companies are in FOMO mode.
It would be nice to have a road map like for silicon chip manufacture. So far chips have not failed to meet expectation except for the dot com bust. So could Ai have a hiccup like the dot com bubble only to bounce back later? Or will there be a terminus? Perhaps uncontrollable AGI?
Well, I think the trade deficit means we currently use 2 trillion dollars a year more than we produce so who knows if AI can put a dent in that.
Trump only counts manufacturing, not services
Another reason he is f’d up on Canada
Worth a read
https://www.groundbrkr.com/p/the-teaser-period-why-the-ai-boom
I will be quite satisfied when the bubble bursts and takes down a lot of sh*t heads along with it.
The trouble with this kind of technological innovation is new investment eats up recent investment before it hatches (has any chance at yielding a return).
And since 1962, we always have positive stock market returns for the 12 months following a midterm election. This includes 2018 that saw a Grinch Christmas with Fed hikes.
now do 1922 and 1932
1922 was a nothing burger (virtually unchanged) and 1932 wasn’t a midterm election.
pedantic.
Much as I respect Jim Bianco he is not always right. I always ask myself about any tv analyst- “Why are they telling us this information instead of profiting from it themselves?” If they were so skilled why aren’t they the richest person in the world? Most of these guys make their money by the ‘reversion to the mean’
theory of stocks or bonds.( Oversold- it’s a buy. Overbought- it’s a sell.) They don’t do well for discontinuous systems and abrupt change.
None of the long term numbers for AI add up, since it would have to make a profit that survives the inevitable upgrade cycles. I suspect anyone who ignores this is heavily invested in AI stocks.
Also, the public backlash against AI is greater than the tv pundits realize. AI kill jobs, pollutes and raises electricity bills. No one but the elites want it as a means of population control. The entry of China and others into the competition means the AI profit numbers are getting worse not better. Eventually projected margins for tokens will collapse.
What are the canaries in this coal mine that will tell us when the AI bubble is bursting:
The VIX is reactive and moves fast and hard as the market collapses so that is a get on the bandwagon late expensively hedge.
CoreWeave is sitting on a lot of old (2-3 years) chip technology but has 5 year contracts to utilize the technology. It’s stock has been more than cut in half in the last year. The credit default swaps are $12 per $100 which indicates a better than 50% chance of default.
The bond market is seeing yields rise so I am not about to get in now and lose value while interest rates rise.
To all or our dismay oil has just jumped above $103 for WTI sooooooooo.
True, and at the midpoint of their five year client deals, CoreWeave needs to finance the other half of the debt. All of their client deals are fixed contract. They were paying 8.4% and new money is 15.6%. Hence, CDS = 55% chance of default.
Bill Gross bets AI can help mass-produce 1 million new startups and 100 million new jobs
His evil plan is to flood the world with no-talent startup douchebros.
And man made food that is unhealthy!! So intentional!!
read “the singularity is near” by ray kurzweil. a most uplifting book with the greatest graphs for the history of life and where we are going. i consider him the smartest human primate alive. when i received my signed copy and met him and saw him accept the award for the leonardo da vinci society for thinking…….it was in the middle of panic of 2008……..his market analysis was also spot on. read the book fellow mish fans.
an excellent question. We also have the high inflationary winds of the 70s and the fuel embargo in the background on top of this too. Ultimately, I think a sudden surge in interest rates at some point down the line will pop the bubble.
The CNBC talking heads are arguing over when the bubble is going to pop, that alone is indication that the punch bowl is no longer overflowing with good times.
I’ve loaded up on government bonds since they’re paying a nice yield and they are currently trading at deep discounts. Add more periodically because the suckers and losers pockets are very deep and they have no choice but to pay.
When the stock crash comes, it’ll be time to rotate out.
what is AI? The merger between corporations and countries is well on its way. To train its Machine God, it needs to strip-mine and stockpile everything that human civilization has ever achieved. It wants to mass transfer the cumulative accomplishments, the fruit of the combined labor of millions of us, over thousands of years, including literature, art, music, mathematics, academic research – everything – into company holdings.
https://www.equator.org/articles/arundhati-roy-artificial-intelligence
theft & burglary
distillation & data flux [in ‘contextualized discourse’]
We cannot go “full-blown Zimbabwe” fast enough to get anywhere near that figure.
Spending generational debt to build stuff with a useful life under a decade
Smartest people in the world
Yup
And borrowing a good chunk of it that adds competition for money that drives up interest rates. It supports higher for longer federal debt service., we all get to pay our fair share.
All our chips on double-zero — creative destruction. The most quintessentially human of actions. Tragic comedy was never better.
Ralph Wiggum says “What’s GEX?”
S&P500 and even Total Market funds have now started updating their prospectuses to note that they no longer meet the definition of a diversified fund. That has never happened previously. The carnage in retirement plans when the AI bubble bursts is going to be huge. Everyone seems to think the bubble is going to burst, it is not on a permanently high plateau. But they don’t know when. Well that the means the bubble is definitely going to burst within retirement fund timelines. Everyone who has been dutifully putting 6-10% of their salaries into index funds on autopilot over the last few years is going to learn the meaning of a fund not being diversified. Investors understand the risks they are taking, but I don’t think the average working man does. This could be much worse than the dot com bust on a society wide level.
At least they won’t be losing their houses.
The sine qua non of a financial bubble is a credit bubble. People lending money no one has ever saved. As in the Fed DOUBLED the Monetary Base in association with the Faucian dystopia [Covid]. The Federal Funds rate was negative in real terms for years. Even now it is ~ the CPI rate, to wit, zero. The bubble is still being fed.
Its “needs” now swamp all others’.
Your manifest destiny has been pre-installed. As an individual human, whatever your notion of personal meaning, accomplishment, worth, or destiny, you are one of those nano-particles riding like a passive tidal creature in a vast set of curves on a very big set of waves on a chart. It was always like. that, especially at inflection points, but just multiplied now. Enjoy the ride.
The only 3 states with annual GDP’s above $2T are CA($4.25T), TX ($2.9T), and NY ($2.5T). CA and NY are borrowing heavily to get those numbers up. That’s quite a lot of revenue AI needs in the next 3-4 years.
went to money show in orlando 2 weeks ago. per a few wise men there, this Bubble is bigger than RR panic of 1873 and the ensuing great depression of that time. 89 RR companies went out of business. forget the stock market for a minute. as a percent of the total economy, this AI bubble today is BIGGER THAN THE RAILROAD BUBBLE AND BUST. of course we all have used trains. commuted for decades on them in the big apple. much easier than driving those death traps called autos.
The difference is that on many different levels, bailouts are much easier now.
The Club gets the sugar. The peons get the shaft.
it has always been easy to control the masses of human primates. probably much easier a few thousand years ago when anything was ok to do……..
Anything is ok to do all the time. The Epstein class knows no limits.
There was huge over spending on the internet build out and development. And while many people took huge losses when the bubble burst, no one can say building the internet was a waste od money.
AI will be a similar situation, the bubble will pop, firms will go bankrupt, investors will take losses.
And like the Internet, people will lose jobs, is there such a thing as telephone operators any more?
People will have to adapt. I would love to see the return of true artisan skills in masonry, carpentry, glass making, iron working, etc.
When I travel through Europe and look at the amazing things built without much technology it reminds me how much lazier and dumber we have all become.
Same is true in Asia and Latin America. Heck people cant figure out how 130 ton stones were moved and that cant even be done today.
https://www.projectunredacted.com/cases/impossible-architecture-puma-punku
Humans adapt or die.
i have such fond memories of riding the .com bubble up up and away. was stopped out of my trailing stop loss positions in winter/spring 2000……….made me feel like a champ. the wreckage to pick over was legendary. i do believe 9.11.01 stopped that recession as the GOV went hog wild.
the benchmark for how dumb and lazy humans can become is with a quick day trip to bath england. the romans built the bath houses. the sidewalk streets of europe were paved with cement, that the europeans learned from the egyptians. after the western roman empire fell……..the people got so dumb they forgot to use the baths and how to formulate cement with limestone. as dumb as trump and flyover country is from south brooklyn to heartland is, we have many steps down to go. the best thing to do imho is face reality and LOL at the tragic comedy of most human primates. they are not complicated. doing the same things for tens of thousands of years. life in the “rich” world is still so easy. most of the pain is self inflicted.
The Romans used central heat to heat their villas in Britain.
I enjoyed my visit to Bath – I spent hours at the Roman bath ruins.
The Romans also had slave labour. The Brits were probably just happy not to be in servitude.
Next time you are looking at those amazing things, try and imagine the hours it took to build them. Often it would have been decades given the amount of manual labor involved.
The Bolivian site did not have a huge population and moving 130 ton blocks of stone didn’t seem to take decades either. And most importantly, modern tech/tools can’t move 130 ton blocks of stone. Call up construction companies and ask them if they can move a 130 ton block and they’ll all laugh at you. And that’s just one block.
https://unanswered.io/guide/heaviest-weight-crane-can-lift
There are fixed cranes that can lift 1200+ tons but they are fixed and can only move a limited range, not from a quarry 10 miles away in rough mountainous terrain. lol.
Cathedrals in Europe are pretty amazing too and they are more recent from 1500s or later. All we have now is cheap concrete buildings that die after 100 years while everything from thousands of years ago still stands.
It took 182 years to build Notre Dame from start to finish. I’d say that qualifies as a very long time. Much of those cathedrals took a lot longer than you expect.
As for moving 130 ton blocks of stone, we don’t know how because we don’t need to know how because we have modern tools (concrete and steel) instead. People forget old technologies the minute new and better ones come along. How many who come to Mish’s site know how to use an Abacus or a Slide Rule? We all grew up with calculators. In the same vein we navigate with GPS instead of Sextants.
Often they slid them over logs or earthen ramps.
(Rather than lift them).
“This time it’s different…”
The most dangerous four words are: this time is different.
The most dangerous five words are: this time is never different.
– Jeremy Grantham
Consuela Mack:
What do you think we will learn from this global financial crisis?
JG:
In the short term, we will learn a lot.
In the medium term, we will learn less.
In the long run, we will learn nothing at all.
– a chat around 12-15 years ago
Yes, I placed a pinup poster of JG next to Pam Anderson…
TMI? /s
Perhaps revenue is not what the data centers are for?
Yes the ROI of war shows up on other balance sheets.
1984 is within reach and the oligarchs will not let anything get in their way.
Methinks that “Brave New World” was the metaphorical first act of “1984”.
Of course. It’s to cut off the ‘Chinese’ at the pass.
If China did not exist, the oligarchs would have to invent it.
A Scary Enemy is needed at all times.
The China scare was invented by the oligarchs
Great tell-tale quantitative article. Overvaluation, supported by extreme debt, over-ownership, with no real prospects for profit return over the near term 3-4 year period.
Where are we in that ball game?
Two outs, last bat, last of the ninth with no runners on base, need eleven runs to win to stay out of the season’s finale cellar … and. … with that famous New York Military Academy slugger with a .138 batting average ‘DJT’ against Cy Young on his best day … or … more simply … October 1929.
ha ha ha
I’m not so worried about the bubble bursting, that’s expected.
What’s more concerning is the current administration will destroy the currency and the economy to keep the oligarchy solvent
i am looking forward to the new Trump Dollar. he’ll give you 30 days to spend your old soon to be retired USD
Say, what’s a Continental worth these days?
That’s an interesting thought. Were they printed on paper good enough to last this long?
Like my dumbass would know about this subject, more than superficially…
You’re probably a numisologist …numbisol….a coin collector guy, aintcha! 😉
During the 1930s, there was an idea of increasing the velocity of money by making currency automatically devalue over time. Like a given dollar bill would depreciate ten percent every month after it was issued, depending on the date of issue.
Ezra Pound was a supporter for a while. Draw your own conclusions.
It’s not just the current administration. Even if you get a new administration, the first thing it would do is to assure the oligarchs that nothing will fundamentally change.
Heck, 0-bama literally did that. And FJ Biden did the same and literally even said it!
It’s pitiful to see ai pushed when you do a search. Like poor children.
Seems reasonable enough to me! I’m sure casual observer’s prediction will come true and it will have replaced everyone’s jobs somehow by 2030, thus generating trillions in revenue!
For anyone who doesn’t think that makes perfect sense, it was really nice getting to know all of you. Even you MPO. I suppose whenever this pops we’ll come out on the other side with a lot of junk ram.
Thus achieving owning nothing and being happy.
My best guess as I am in the storage and memory industry is things are going to come back to reality in 2027. This process is already underway. The reason is AI is become a net job destroyer. Humans are cooked BY 2030. I think we will see some form of UBI or a new monetary system by 2032. There is going to be a lot of pain between now and then. AI is gonna take down a lot of folks and likely cause civil unrest.
That’s fine… they can get as angry as they want. Combat droids are well into development, and they have no problem slaughtering civilians that get uppity.
A friend of mine has a PhD and years of experience in cryptographic algorithms. Last week he was lamenting that a marketing guy sent him a suggestion about improving a cryptographic algorithm that he groked (pun intended). Not that the suggestion was bad, but that the marketing guy was clueless about his ignorance, empowered as he was by AI. My friend is as sure as me that it’s the end of the post Colonial War II era and its pretend meritocracy. Wages have only one way to go, no matter the years spent in education: down. Fortunately, for us, high earners, we can manage an early retirement, but, as for those engineers who’ve entered the labor force in the last 10 years, it’s going to be a race to the bottom.
Is there a reverse ETF on their debt?
Why not just short their stocks?
You can buy time dated put options if you prefer not to directly short (especially naked).
Stay tuned. ETFs are cooked up now in days.
My first typo said “coked up,” but that was 40 years ago. Unless, the pundits joke, you are taco’s elder spawn.
I would imagine you’d short their bonds, sort of like Michael Burry did with MBS.
Perhaps, taco can help fund the data centers given the $billions that he has stolen from various sources over the past two years.
once up a time some governments stole for their people
todays versions steal from their people
and worse
Paraphrasing Stalin:
One person’s outcome is a tragedy. A million of them is a statistic.
I am now a book entry in some geekish processor’s rear view mirror. And whoever or whatever has the whip handle on that processor, can chuckle about all this in 350 years.
Well, you don’t even have to travel to steal from your own.