My Honest & Sober Opinion on AI

Next week, I’m giving a keynote to executives from top companies here in Spain, and I’ve been tasked with giving a state of the union on AI, from markets to product.

It’s designed to be a review that keeps you instantly up to date on the industry and all the tricks it tries to play on you. It’s a sober, no-bullshit analysis that will help you make better decisions along the way.

If you ever wanted to ask me, “What’s your honest opinion on the state of AI?” this is what I would answer.

Let’s dive in.

The Macro Picture in 2 Minutes

First, we are going to recap the state of the industry from a macro perspective: how big it is and where money is coming from through a series of graphs you can go over in 2 minutes.

From the looks of it, the level of investment we’re seeing in AI is unprecedented, especially in terms of the steepness (how fast we are deploying so much capital).

Source: Dell’Oro, IEA

However, once we factor in global GDP, we realize that the situation is not that impressive or unique in history:

Source: Dell’oro, IEA

Irrespective of that, the stock market has reacted in good measure, rallying to new all-time highs at the time of writing, and catapulting the ‘winners’, companies exposed to AI in a positive way, and “sepulting” the losers, those that are negatively affected by AI.

Today, the stock market is a market of AI winners and losers.

Which is to say, in the eyes of the market, your correlation, positive or negative, relative to AI, determines your fate. Perhaps no better example of this is the following, where I’ve plotted the performance of the CPU and Memory chips (a weighted basket of the most popular stocks in each) relative to a SaaS index.

And while the latter is down 15% year-to-date, memory stocks are up an average of 200% (again, weighted), meaning they’ve tripled in value, and CPU stocks have, on a weighted average basis, doubled.

Source: Author

This has, of course, concentrated indices (and earnings) in many countries around AI (we have some extreme cases like Korea), but the US is an example of this too:

This has stoked fears of an imminent bubble explosion (it’s a bubble, but the implications are harder to answer), but if we compare it to other technology-driven bubbles, it’s nowhere near the same levels of ‘bubbleness’, at least relative to the “dot-com” bubble of the early 2000s:

Source: Pictet Asset Management

Seeing all of this, the natural question is: who’s paying?

The default answer everyone resorts to is US and Chinese Hyperscalers, especially the former (Meta, Amazon, Microsoft, Google, and Oracle), with capital expenditures that are more than impressive and grow incredibly year over year.

Source: Morgan Stanley

However, these guys don’t have infinite money, and it’s having an impact that's emptying reserves really fast.

Source: Bloomberg

Thus, if you dig deeper, you realize that the source is actually…

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