Did AI abolish the business cycle?
So far, that appears to the case. The more important question is: how long will that continue?
AI Infrastructure Spending Is The Only Growth Driver Now
Tech spending on AI has been the key driver of the economy in the last couple of years. IT spending contributed an average of 1%+ to GDP growth in the first half of this year, as the chart below shows.
This chart is provocatively titled “AI spending is eating the economy”, which is not a bad way of summarizing how accelerating tech spending due to AI mania may be leading to weaker consumer spending growth. This is because there are limited resources in the economy, so the more scarce resources devoted to tech spending, the fewer resources available for other types of spending. This is typical of unsustainable bubbles, as explained by Austrian business cycle theory.
Similarly, this chart shows real private spending excluding tech spending has fallen to around 0% in recent quarters.
AI Capex Bubble
According to consensus estimates, there is a big capex bubble among AI hyperscalers Amazon, Google, Meta, Microsoft and Oracle in 2024 and 2025. But that is expected to slow in a couple of quarters, as shown here.
Will all this capex deliver high returns on investment for these companies?
AI hardware is being depreciated quickly, with an estimated useful life of only two to three years. By comparison, the fiber optics laid during the late 1990s tech bubble had decades of useful life.
Bain & Co. has estimated that all this AI capital spending will require $2 trillion in annual AI revenue by 2030. That is more than all of the current combined revenue of Amazon, Apple, Google, Microsoft, Meta and Nvidia. Last year, total AI revenue was only $45 billion. That means AI spending needs to rise more than 40 times over the next five years to justify this spending. That might be possible, but who knows?
AI Mania Is Becoming Even More Absurd
As further proof that AI mania is going off the rails on the crazy train, as Ozzy (RIP) would say, projections about the amount of money and energy to be devoted to AI in the coming years is reaching insane proportions.
Here is one example from JP Morgan's Michael Cembalest:
"Oracle’s stock jumped by 25% after being promised $60 billion a year from OpenAI, an amount of money OpenAI doesn’t earn yet, to provide cloud computing facilities that Oracle hasn’t built yet, and which will require 4.5 GW of power (the equivalent of 2.25 Hoover Dams or four nuclear plants), as well as increased borrowing by Oracle whose debt to equity ratio is already 500% compared to 50% for Amazon, 30% for Microsoft and even less at Meta and Google. In other words, the tech capital cycle may be about to change."
Perhaps even crazier is that OpenAI, the creator of ChatGPT, is planning to use more energy than the UK or Germany in 5 years, and even more than India in 8 years. That is just one company's energy plans. What are the plans of Oracle, Amazon, Apple, Google Microsoft, Meta, Nvidia and other major tech companies? Is this physically possible? What about all the concerns over energy use and "climate change"?
Investment Implications
AI mania has led to what appears to be a capex bubble by mega-cap Tech companies. When this bubble fizzles out, what will propel the economy and the stock market with consumers tapped out, particularly with tariffs likely to pressure consumers even more going forward?
To summarize: this is a very interesting — and dangerous— time to be an investor.
What are the implications of the massive employment revisions?
You must be a registered user to view this answer. Register for FREE here.
What is the leading economic index telling us now?
You must be a registered user to view this answer. Register for FREE here.
How is sentiment among small business owners?
You must be a registered user to view this answer. Register for FREE here.
What is so important about the latest Services PMI?
You must be a registered user to view this answer. Register for FREE here.
How well did you time your recommendation to invest in gold, silver and mining stocks?
You must be a registered user to view this answer. Register for FREE here.
What are businesses saying about the economy right now?
You must be a registered user to view this answer. Register for FREE here.
What is the best type of investment fund for safety and interest income?
You must be a registered user to view this answer. Register for FREE here.
What is going on with stagflation and Ethereum?
You must be a registered user to view this answer. Register for FREE here.
What does the latest inflation and small business survey mean for the economy?
You must be a registered user to view this answer. Register for FREE here.
What are the investment implications of the falling US dollar?
You must be a registered user to view this answer. Register for FREE here.
What is the risk with US interest rates and credit rating?
You must be a registered user to view this answer. Register for FREE here.
What is the current economic outlook?
You must be a registered user to view this answer. Register for FREE here.
What is going on with inflation, tariffs and inflation expectations?
You must be a registered user to view this answer. Register for FREE here.
Why is consumer confidence plummeting?
You must be a registered user to view this answer. Register for FREE here.
Why are small cap stocks so weak?
You must be a registered user to view this answer. Register for FREE here.
In technical analysis, is trend or sentiment more important?
You must be a registered user to view this answer. Register for FREE here.
What is the outlook for the housing market?
You must be a registered user to view this answer. Register for FREE here.
What are small business owners telling us?
You must be a registered user to view this answer. Register for FREE here.
What are the investment implications of the latest consumer confidence survey?
You must be a registered user to view this answer. Register for FREE here.
What are the implications of the recent weak housing data?
You must be a registered user to view this answer. Register for FREE here.
What impact is Trump having on the economy so far?
You must be a registered user to view this answer. Register for FREE here.
What are consumer confidence and leading economic indexes telling us?
You must be a registered user to view this answer. Register for FREE here.
How is housing demand and what are the investment implications?
You must be a registered user to view this answer. Register for FREE here.
Will the Fed blame Trump for higher inflation?
You must be a registered user to view this answer. Register for FREE here.
Is the rise in bond yields a bullish sign?
You must be a registered user to view this answer. Register for FREE here.
Will the Fed HIKE rates due to rising inflation?
You must be a registered user to view this answer. Register for FREE here.
Why are so many stock sectors selling off recently?
You must be a registered user to view this answer. Register for FREE here.
How do gold ETFs work, what is gold seasonality and how is the current trend?
You must be a registered user to view this answer. Register for FREE here.
Why are new home sales and home prices falling?
You must be a registered user to view this answer. Register for FREE here.
What are Fed rate cuts and yield curve un-inversion telling us?
You must be a registered user to view this answer. Register for FREE here.
Why is Warren Buffett selling so much Apple stock?
You must be a registered user to view this answer. Register for FREE here.
What do the latest Fed Beige Book and declining oil prices tell us about the economy?
You must be a registered user to view this answer. Register for FREE here.
How can there be a recession with strong retail sales?
You must be a registered user to view this answer. Register for FREE here.
What do the latest manufacturing surveys tell us about the economic outlook?
You must be a registered user to view this answer. Register for FREE here.
How do gold, silver and precious metal mining stocks perform in a recession?
You must be a registered user to view this answer. Register for FREE here.
What is industrial production, retail sales and housing data telling us about the stock market outlook?
You must be a registered user to view this answer. Register for FREE here.
Why is the Fed going to cut rates this month…and will it work?
You must be a registered user to view this answer. Register for FREE here.
Can China help prevent a global recession?
You must be a registered user to view this answer. Register for FREE here.
Is the latest inflation data telling the Fed to cut rates?
You must be a registered user to view this answer. Register for FREE here.
What does the latest yen carry trade disaster mean for investors?
You must be a registered user to view this answer. Register for FREE here.
Why will the Fed cut rates with inflation still well above 2%?
You must be a registered user to view this answer. Register for FREE here.
What do you think of the recent weakness in NVIDIA stock?
You must be a registered user to view this answer. Register for FREE here.
What does the recent PMI data tell us about the likelihood of recession?
You must be a registered user to view this answer. Register for FREE here.
Is AI ushering in a new era for tech stocks and the market?
You must be a registered user to view this answer. Register for FREE here.
What does the recent disappointing retail sales data tell us about the stock & ETF outlook?
You must be a registered user to view this answer. Register for FREE here.
How can there be a recession with incomes growing?
You must be a registered user to view this answer. Register for FREE here.
What is the Duncan Leading Indicator telling us about the economic outlook?
You must be a registered user to view this answer. Register for FREE here.
Why did The Conference Board rescind their recession forecast?
You must be a registered user to view this answer. Register for FREE here.
What is Warren Buffett telling stock and ETF investors with his large cash hoard?
You must be a registered user to view this answer. Register for FREE here.
What does the latest GDP and inflation data mean for stocks and ETFs?
You must be a registered user to view this answer. Register for FREE here.
What are your thoughts on the recent undercover interview with a Fed economist?
You must be a registered user to view this answer. Register for FREE here.
What does the latest inflation report mean for Fed policy and markets?
You must be a registered user to view this answer. Register for FREE here.
How can there be a recession with the unemployment rate so low?
You must be a registered user to view this answer. Register for FREE here.
Is the Fed inflating the market because it’s an election year?
You must be a registered user to view this answer. Register for FREE here.
Why are small cap stocks lagging large cap stocks?
You must be a registered user to view this answer. Register for FREE here.
How can you see a recession coming, while the Fed and others are so bullish?
You must be a registered user to view this answer. Register for FREE here.
What do you think about the latest US Leading Economic Index report?
You must be a registered user to view this answer. Register for FREE here.
What are the risks of buying the Magnificent Seven stocks?
You must be a registered user to view this answer. Register for FREE here.
Are there any signs that inflation will reaccelerate and the Fed won’t cut rates?
You must be a registered user to view this answer. Register for FREE here.
How can there be a recession with low initial unemployment claims?
You must be a registered user to view this answer. Register for FREE here.
What are key signs of a possible trend change for the stock market?
You must be a registered user to view this answer. Register for FREE here.
What is the risk inflation re-accelerates in 2024?
You must be a registered user to view this answer. Register for FREE here.
Do you expect the stock market to generate 10%+ long-term returns?
You must be a registered user to view this answer. Register for FREE here.
Why isn’t the Fed expecting a recession?
You must be a registered user to view this answer. Register for FREE here.
What are some important recession signs Wall Street is ignoring now?
You must be a registered user to view this answer. Register for FREE here.
How can there be a recession when the consumer is so strong?
You must be a registered user to view this answer. Register for FREE here.
What do the latest employment indicators tell us about the economic outlook?
You must be a registered user to view this answer. Register for FREE here.
What is the current outlook for the housing market?
You must be a registered user to view this answer. Register for FREE here.
Is Bitcoin going to the moon?
You must be a registered user to view this answer. Register for FREE here.
Are the “magnificent seven” tech stocks a safe place to hide going forward?
You must be a registered user to view this answer. Register for FREE here.
Does the latest strong jobs report prove a “soft landing” is coming?
You must be a registered user to view this answer. Register for FREE here.
How long and severe do you expect this recession to be?
You must be a registered user to view this answer. Register for FREE here.
How can there be a recession with employment still growing?
You must be a registered user to view this answer. Register for FREE here.
Given the current seemingly mixed signals in the markets, what should a prudent investor should do?
You must be a registered user to view this answer. Register for FREE here.
What is the best stock index to monitor for bull and bear trends?
You must be a registered user to view this answer. Register for FREE here.
What do current stock market valuation levels imply for future returns?
You must be a registered user to view this answer. Register for FREE here.
What will the likely impact be from the US credit rating downgrade?
You must be a registered user to view this answer. Register for FREE here.
What are the implications of the latest Fed rate hike and inflation data?
You must be a registered user to view this answer. Register for FREE here.
What are key economic metrics telling us now about a recession?
You must be a registered user to view this answer. Register for FREE here.
What are the investment implications of the latest employment report?
You must be a registered user to view this answer. Register for FREE here.
What is the outlook for Fed rate hikes going forward?
You must be a registered user to view this answer. Register for FREE here.
What are the implications of the latest CPI report for the stock market outlook?
You must be a registered user to view this answer. Register for FREE here.
Why is China lending so aggressively to developing countries and what is the likely outcome?
You must be a registered user to view this answer. Register for FREE here.
What are the most important recession indicators to focus on now?
You must be a registered user to view this answer. Register for FREE here.
Can NVIDIA and AI prevent a bear market?
You must be a registered user to view this answer. Register for FREE here.
What does the latest retail sales report tell us about the economy?
You must be a registered user to view this answer. Register for FREE here.
What does the latest jobs report say about the employment outlook?
You must be a registered user to view this answer. Register for FREE here.
Why is money supply growth important and what is it telling us now?
You must be a registered user to view this answer. Register for FREE here.
Who will likely suffer most from the current banking crisis?
You must be a registered user to view this answer. Register for FREE here.
What is the likely success of BRICS countries to replace the dollar and what are the implications for the US?
You must be a registered user to view this answer. Register for FREE here.
Since balance sheets are healthier than before the Great Recession, won’t this recession be mild?
You must be a registered user to view this answer. Register for FREE here.
Will the banking crisis cause the Fed to “pivot” and cut interest rates?
You must be a registered user to view this answer. Register for FREE here.
What do you make of Fed Chair Powell’s recent comments?
You must be a registered user to view this answer. Register for FREE here.
What are the implications of the recent stock market selloff?
You must be a registered user to view this answer. Register for FREE here.
What are the economic and investment implications of the latest inflation data?
You must be a registered user to view this answer. Register for FREE here.
Do you expect a global recession, as well as a US recession?
You must be a registered user to view this answer. Register for FREE here.
Is this stock market rally the beginning of a new bull market?
You must be a registered user to view this answer. Register for FREE here.
How are investment opportunities different between bull and bear markets?
You must be a registered user to view this answer. Register for FREE here.
What are the implications of the December employment report?
You must be a registered user to view this answer. Register for FREE here.
What is the current outlook for US home prices?
You must be a registered user to view this answer. Register for FREE here.
What are some low-risk investment alternatives with a decent return?
You must be a registered user to view this answer. Register for FREE here.
What do you think of the market’s reaction to Powell’s recent comments?
You must be a registered user to view this answer. Register for FREE here.
Are there any signs a US recession has ALREADY started?
You must be a registered user to view this answer. Register for FREE here.
What is the best indicator for anticipating and trading bear market rallies?
You must be a registered user to view this answer. Register for FREE here.
When do you expect the Fed to “pivot” and cut interest rates?
You must be a registered user to view this answer. Register for FREE here.
Is it a good time to invest in real estate if higher inflation and interest rates cause a higher demand for renting?
You must be a registered user to view this answer. Register for FREE here.
Given OPEC’s recent oil production cut, do you still believe oil markets have more bear market downside to come?
You must be a registered user to view this answer. Register for FREE here.
What do ETF investors need to know about K-1 tax forms?
You must be a registered user to view this answer. Register for FREE here.
What caused the current high inflation and what did the Fed do wrong?
You must be a registered user to view this answer. Register for FREE here.
What does the European energy crisis mean for investors?
You must be a registered user to view this answer. Register for FREE here.
What is Quantitative Tightening and how will it impact financial markets?
You must be a registered user to view this answer. Register for FREE here.
What are the best and worst stock sectors in a bear market?
You must be a registered user to view this answer. Register for FREE here.
How have your forecasts worked out over the past year? (Part 2)
You must be a registered user to view this answer. Register for FREE here.
How have your forecasts worked out over the past year? (Part 1)
You must be a registered user to view this answer. Register for FREE here.
How can you use volume as a technical indicator for investing?
You must be a registered user to view this answer. Register for FREE here.
What problems are caused when banks create money out of thin air?
You must be a registered user to view this answer. Register for FREE here.
Are dividend growth funds a good long-term investment at the moment?
You must be a registered user to view this answer. Register for FREE here.
What do you think of Yellen’s comments that we will not have a recession?
You must be a registered user to view this answer. Register for FREE here.
Do stocks always outperform T-bills and inflation in the long run?
You must be a registered user to view this answer. Register for FREE here.
Are inverse ETFs worth considering as investment vehicles?
You must be a registered user to view this answer. Register for FREE here.
Any thoughts on Bernanke’s recent inflation and recession comments?
You must be a registered user to view this answer. Register for FREE here.
Is Bitcoin or gold a better inflation hedge now?
You must be a registered user to view this answer. Register for FREE here.
Does the negative GDP report mean we’re already in a recession?
You must be a registered user to view this answer. Register for FREE here.
Will the next bear market be one big disaster or a series of crises? And what will the Fed do about it?
You must be a registered user to view this answer. Register for FREE here.
Is the Fed really trying to crash the housing, bond and stock markets?
You must be a registered user to view this answer. Register for FREE here.
What is different between now and the 2020 stock market crash?
You must be a registered user to view this answer. Register for FREE here.
In your “Stocks & Commodities” article, there were 4 times since 2009 that met your “sell short” criteria but were not major bear markets. Thoughts?
You must be a registered user to view this answer. Register for FREE here.
What are credit markets telling us now about stocks and ETFs?
You must be a registered user to view this answer. Register for FREE here.
What impact will the Russia/Ukraine war have and is the stock market correction over?
You must be a registered user to view this answer. Register for FREE here.
How are major ETF asset classes looking on your Trend and Trade analysis?
You must be a registered user to view this answer. Register for FREE here.
What does the latest inflation report mean for interest rates and the economy?
You must be a registered user to view this answer. Register for FREE here.
Is the stock market rally over?
You must be a registered user to view this answer. Register for FREE here.
What do your measures of stock market sentiment and internals tell us about the outlook for stocks and ETFs?
You must be a registered user to view this answer. Register for FREE here.
What are technical trend lines telling us now about stocks and ETFs?
You must be a registered user to view this answer. Register for FREE here.
Is it better to invest in Growth or Value stocks now?
You must be a registered user to view this answer. Register for FREE here.
What is the best indicator to determine if a stock or ETF is “overbought” or “oversold”?
You must be a registered user to view this answer. Register for FREE here.
What can the “Santa Claus rally” and “January Barometer” tell us about the outlook for the stock market in 2022?
You must be a registered user to view this answer. Register for FREE here.
How will the latest Fed announcement to fight inflation impact stocks and ETFs?
You must be a registered user to view this answer. Register for FREE here.
What is the VIX, why is it important and what is it telling us now?
You must be a registered user to view this answer. Register for FREE here.
How will new Covid variants impact the economy and stock market?
You must be a registered user to view this answer. Register for FREE here.
What do you think about investing in TIPS versus traditional Treasury bond ETFs given high inflation?
You must be a registered user to view this answer. Register for FREE here.
What are the implications of high inflation for stocks, ETFs and the economy?
You must be a registered user to view this answer. Register for FREE here.
Are we in another housing bubble?
You must be a registered user to view this answer. Register for FREE here.
Why is EPS growth so important in stock investing?
You must be a registered user to view this answer. Register for FREE here.
What can stock and ETF investors learn from the fact that Japan’s stock market is still well below its highs of 30+ years ago?
You must be a registered user to view this answer. Register for FREE here.
Do you think the economy is heading towards “stagflation”?
You must be a registered user to view this answer. Register for FREE here.
Your MarketWatch.com interview seemed very bearish. Are there any stocks or ETFs you recommend buying right now?
You must be a registered user to view this answer. Register for FREE here.
Shouldn’t stock and ETF investors focus on current money supply growth, since it drives the economy and stock market?
You must be a registered user to view this answer. Register for FREE here.
Why shouldn't investors just follow the simple Wall Street rule of “don’t fight the Fed”?
You must be a registered user to view this answer. Register for FREE here.
How can you make money — instead of lose money — in a major bear market with ETFs?
You must be a registered user to view this answer. Register for FREE here.
How important is stock market seasonality for stock and ETF investors, particularly in September and October?
You must be a registered user to view this answer. Register for FREE here.
How concerned should stock and ETF investors be about margin debt levels?
You must be a registered user to view this answer. Register for FREE here.
Are US Treasury Bond ETFs safe long-term investments?
You must be a registered user to view this answer. Register for FREE here.
What are the key characteristics of winning stocks?
You must be a registered user to view this answer. Register for FREE here.
What are the best and worst trending stock sector ETFs right now?
You must be a registered user to view this answer. Register for FREE here.
What is the likelihood the next bear market and recession will be even worse than the Great Recession of 2008-2009?
You must be a registered user to view this answer. Register for FREE here.
What impact will the US government’s stimulus package have on the economy and stocks?
You must be a registered user to view this answer. Register for FREE here.
I've never invested before in my life. How do I start?
You must be a registered user to view this answer. Register for FREE here.
What is wrong with a “buy and hold” or “asset allocation” investment strategy?
You must be a registered user to view this answer. Register for FREE here.
Why is it so important to keep investment costs low on stocks and ETFs and how can that be done?
You must be a registered user to view this answer. Register for FREE here.
What is the best way to invest to retire early?
You must be a registered user to view this answer. Register for FREE here.
What are the best ways for investors to profit from stock bear markets, such as the 2008-2009 Global Financial Crisis?
You must be a registered user to view this answer. Register for FREE here.
What are the historical long-term returns of stocks, bonds, bills, REITs, housing, gold, commodities and inflation?
You must be a registered user to view this answer. Register for FREE here.
How can technical analysis be helpful to profit from bull and bear markets in stocks and ETFs?
You must be a registered user to view this answer. Register for FREE here.
What is the primary cause of bull and bear markets in stocks and ETFs?
You must be a registered user to view this answer. Register for FREE here.
How do you use economic indicators to determine the outlook for the economy, stocks and ETFs?
You must be a registered user to view this answer. Register for FREE here.
How can you estimate the long-term returns of stocks, bonds, REITs and other financial assets?
You must be a registered user to view this answer. Register for FREE here.