The market is souring on the idea of AI at all costs. Five thoughts on what’s coming next
Here are a few thoughts on what's happening with AI capex at the moment.
Three things happened yesterday:
- Apple raised prices on many products, and significantly, due to memory costs
- Microsoft announced X-Box price increases for the same reason
- Amazon announced it will raise prices on GPU instances by 20% on July 1
That's highlighting that companies are no longer willing to subsidized AI costs to maintain market share and is the beginning of a push back on the intense drain on free cash flow from AI.
“Unfortunately, price increases are unavoidable,” Tim Cook said this month. “We’re doing our best to mitigate the huge increases that are being passed to us, and we’ve been trying to shield our customers from the increases, but the situation has become unsustainable.”
The big recent stock market declines will also motivate companies to find savings and that means pushing back on suppliers or re-calibrating timelines.
Secondly, this poll obviously isn't scientific but it surprised me and maybe it shouldn't have:
I've long thought it would be Meta that quits first but MSFT shares are down more and on track for their worst monthly loss since 2008. Zuck tanked META stock by 70% before he gave up on the Metaverse and we're still a long way from there. Microsoft has shown very few wins on AI and Co-Pilot is something of a joke. They aren't even really in the race so maybe it's time for them to play a different game.
In any case, the market is increasingly coming around to the idea that someone will drop out. Keep an eye on Microsoft.
Thirdly, here is some perspective on capex:
Micron guided to revenue of $50 billion next quarter, which is $200 billion annualized. For perspective, total AI capex this year is $750 billion for hyperscalers. That's the equivalent of 26% of all spending going to Micron. Now I understand that much of that money is spent by consumers via things like Apple products but Micron revenue in quarters before the capex boom started was $4 billion so $46 billion of that (or $184 billion annualized) of that is new money coming from somewhere.
That's an insane amount of money. As Tim Cook said "the situation has become unsustainable."
Fourthly, Micron is now in everyone's crosshairs. This is from Tsachy Mishal:
When had everyone by the balls, every company came up with an alternative for GPUs. The idea that the richest, most technologically advanced companies in the world will just pay insane prices for a commodity product forever
Micron shares are down 6.7% pre-market and well on their way to closing yesterday's opening gap.
Fifth.
Speaking of Nvidia, when you combined their revenue with Micron, that means combined are extracting $525B per year from the economy, mostly via megacap tech. Hyperscalers are spending all their cash flow on chips and memory. That's run out and now they're taking on debt and Alphabet even -- shockingly -- issued equity.
They are obviously hitting a spending wall. They likely cannot accelerate spending beyond what it is today. Yet Micron and Nvidia are are projecting growth? From who?
This article was written by Adam Button at investinglive.com.提供 MainLink：Investinglive RSS Breaking News Feed
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