Another day, another $100 billion in AI investment. Gargantuan spending on data centers, chips and new models has prompted careful comparisons to past capital spending booms, from railways to fiber optic cables.
Is it different this time?
Let's assume that AI is just as economical game changer as the railway or the internet, then look at money.
Analysts hope that the big tech companies will spend around $300 billion on AI this year. This was spent a little more on laying cables in 2000 by telecommunications companies. AI accounts for 2% to 3% of the full US text.
But the question is not whether the investment is large, but where the money comes from. The Robber Baron and the Communications Wildcasts borrowed to build an empire and dragged investors when the music stopped. There was the 1893 Panic and the dot com crash. The fracking company spent two free cash flows in 2016, showing little remaining from shareholders when the shale boom ran out of steam.
The majority of AI investments come from Tech Giants, who spend the profits generated by dominant businesses in advertising (Google and Meta), software (Microsoft), and Cloud Computing (Microsoft and Amazon). These cash cows are not created equally at all. AI is threatening to lift up cloud business and completely overturn advertising, but everything is healthy enough to back up the checks it has written by its owners. “That's an epic amount,” Vlad Barbalat, who manages more than $100 billion as the chief investment officer at insurance company Liberty Mutual, recently told me, “But that's real money.”
Economically, this boom exists Fundingdo not have Funding. While some players like CoreWeave seem to be volatilely exploited, the big amount of AI comes from profits. These companies are not easing their future. They are spending their current prize money. bad Funds The options may be painful, but the blast radius will be smaller. fool Funding Large-scale decisions tend to unravel in strange places and pull threads that cause systematic meltdowns.
Big warning here: AI stumblings from the big tech companies accounting for one-third of the S&P 500 by market capitalization could be revealed other People's stupid fundraising choices. A sudden slide in stock causes enormous margin calls, forcing the things that are at hand, as we saw in the early days of the pandemic. For example, US Treasury bonds. That would be bad.
But for now, major players are not betting money they don't have. This makes this boom potentially more sustainable.
