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By Max Frost
Nvidia invests up to $100B in OpenAI. In return, OpenAI commits to buy huge volumes of Nvidia chips.
Meanwhile, OpenAI strikes a multibillion-dollar chip deal with AMD and gets the rights to acquire up to ~10% of AMD’s stock.
And don’t forget, OpenAI has committed to a $300B compute/infrastructure deal with Oracle, building data centers that will be stuffed with chips (some of which are from Nvidia or AMD).
AMD and Oracle then announce they’ll deploy 50,000 of AMD’s MI450 GPUs in Oracle’s cloud/AI superclusters. So Oracle is buying AMD chips, which OpenAI partly owns.
And, of course, Nvidia is investing in AI infrastructure companies that are buying – whose? – Nvidia’s(!) hardware.
What the hell is happening in the AI industry? In the economy? In the market? No one seems to know, but deals keep getting made and stocks keep going up, up, up….
Today, we look at a few questions: Are we headed to a 2008-, 2000-, or 1929-level calamity? Are these circular deals – that nitwits like us can scarcely understand – signs that the AI bubble is bubbling up into a disaster? Or has Wall Street learned to only strike wise deals, moved on from “irrational exuberance,” and put us on the path to a financial golden age?
We examine these questions in today’s deep-dive and see what financial history tells us about our current situation.
Which economy are you living in? Because right now, the US effectively has two: AI (booming) and non-AI (not booming).
Right now, there are a record 11 trillion-dollar-plus companies, four of which are worth $3T+. That’s never happened before. But almost as much as stocks are up, jobs are down. Take a look at the below chart, from the newsletter 268capital.
Yet the market is weaker than it looks: On September 29, Morgan Stanley Wealth Management’s chief investment officer released a report noting that since the AI boom began with the release of ChatGPT in November 2022, 75% of S&P 500 returns and 80% of S&P 500 profit growth have come from “AI data center-ecosystem stocks.” She noted that high stock returns over the past three years have been a “one-note narrative.” In other words: Almost totally dependent on AI.
In the rest of this article, we look at the data and historical precedents to understand if we are or are not in a bubble. And, if we are, what happens when it pops?
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Editor’s Note
Thanks for reading. We’d love to hear your takes on this: Are we in an AI bubble? If so, what happens if it bursts? Send in your thoughts here.
And find our latest stories below if you haven’t read them yet:
Enjoy your Saturdays.
—Max and Max
