Did The AI Bubble Just Pop?

Channel: Alex Kantrowitz

Published at: 2024-08-04

YouTube video id: LXWuCdUGObs

Source: https://www.youtube.com/watch?v=LXWuCdUGObs

what we're seeing this week is the first
time that Amazon meta Microsoft even
snap all these companies came out and
talked about how they're just investing
tons and tons of money into AI into AI
infrastructure meta is spending they
said up to $40 billion in total Capital
expenditures majority of which will be
infrastructure related to AI Microsoft
is going to spend $ 56 billion next year
Google's projected to spend 48 billion
doll and 48 billion for Google is
actually 177% of total sales so these
are not small numbers and Investments
for them but then on the other side
they're starting to get questions this
the first time in earnings calls rather
than asking are you investing uh like a
UBS analyst was asking the Google
Google's CEO Sundar you know when is it
going to help Revenue generation and
create greater value over time versus
just cutting costs uh Morgan Stanley
analyst in the Microsoft earnings call
was saying there's an industry debate
raging around these capital expenditure
requirements but what will the
monitization actually match that and we
have talked about this a lot we talked
about at the micro level when it comes
to renewals after that first year you're
a big corporate and you signed up for
Azure AI or Geminis and Google Cloud's
AI services are you actually going to
see value enough to keep investing in it
and from the big Tech companies they're
spending so much money but even the
Microsoft CFO said this the value could
be realized over the next 15 years and
Beyond you never hear public company
CFOs talking about massive Capital
expenditures and giving a 15-year time
frame to Public Market investors so I
think this is with the Goldman Sachs
report kicked it off everyone's going to
start questioning these expenditures and
the big tech company
they basically this week said we don't
care we're doing it so how this plays
out I mean we're certainly seeing the
Market's reaction right but a lot of the
big tech stocks are are doing okay and I
think it's worth I mean except for
Amazon we can talk about Amazon we talk
about Intel but I think it's worth
noting that like this is not this
slowdown that we're seeing in the market
is not driven by AI spending this is
driven by broader economic macroeconomic
factors does AI spending help it not
but I don't think this is causing the
real issues and case in point I mean
meta you know these companies that we
talk about meta basically went out there
delivered great earnings results they've
grown Revenue 20% over the last four
quarters which is insane given how much
money that they're making and the stock
didn't drop when they said it when they
raised the B it was the bottom of their
guidance right where they said they're
going to they're going to raise the
amount that they're going to intend to
spend um Microsoft similar thing
Microsoft roft actually missed its Cloud
number but then uh it bounced back the
next day when uh people read the report
and sa nadela said it's a capacity issue
for them to sell not a demand issue
right they just didn't have enough
Hardware um alphabet I think beat
expectations did the first10 billion
quarter in a Google Cloud history
although Google um did Miss on YouTube
Revenue but I don't think there anything
to do with AI I'm trying to think and
then meanwhile Nvidia just went up
because it saw all these numbers uh
hitting so I would challenge your your
perception here that this is the end of
the AI bubble so this week the market
reaction is not just from AI spending
I'll give you that I think AI SP it's
not the entire Market is in a sea of red
because these big tech companies are
spending tens of billions of dollars on
AI infrastructure but I do think The
Narrative that's held up the market
during any downturn over the last year
year and a half is there's go this this
wave of AI Innovation is going to just
lead to Incredible cost savings for
companies so increasing profit margins
incredible new avenues of growth the
world is going to change that narrative
has been so strong that in any kind of
potentially the uh you know problematic
moment that held the market up and the
big obviously the big seven were driving
this and I mean they've been a
significant segment of the overall
market growth anyways so now that they
are getting questioned and now people
are starting to worry again do we trust
them to almost think of there I'd seen
one comment around how someone said you
never hear 15-year Market uh time frames
from public markets that's asking us to
be a venture investor and I'm not a
venture investor I'm a public markets
investor like the the companies are
asking us to trust them around this
spending and the fact that they're
finally getting questioned and as we've
discussed over and over again there
probably will be some very shortterm
issues around customer satisfaction and
customers like actually realizing value
enough to keep investing themselves in
generative AI efforts even though I'm
long-term positive and optimistic about
it so I think it's not it's not
necessarily today and yesterday that the
AI
the AI investment is causing the sell
off but I think over the next couple of
weeks and months it's going to be a
problem and this has been what's held up
the market so far and it's it's going
away let me just make the Counterpoint
to that isn't it a miracle then that if
this is such an issue for investors that
these big tech companies aren't selling
off more
than the rest of the market is I mean in
some cases they are but I don't think
it's due to AI if you think about Amazon
for instance Amazon selling off more
than the market I think they missed
their their whisper number in terms of
the number that people really expect
them to do but they still grew 19%
Amazon web services they turned in
record
profits and then you think about others
like meta right we talked about meta
spending uh they're down you know a
percentage and change today while the
S&P 500 is down 2% Google right people
so upset about Google spending if that
was what's going to drive them down I
mean I know it's hard to take a single
day but Google's only down you know two
2% in change uh while the S&P is down
two and then Apple is up
today okay
so we have to remember that Google had
$24 billion of profit off $85 billion of
Revenue Microsoft had 22 billion in
profit off 65 billion like these numbers
are still insane in terms of how
profitable these companies are so yeah I
I agree on a relative basis that's a
problem but that's what these numbers
were good the reason meta and it's still
I think it's only up about 4% since the
earnings blow and it was a blowout it
was like they they crushed it I mean
Mark Zuckerberg wearing two chains I
still I that for anyone who got Mark
Zuckerberg they sent out this uh thing
around their ability to understand
objects within video and in the demo
he's wear he wears a second gold chain
that I think he actually got from Tay if
I remember correctly that would that
would trik yeah which is all ridiculous
but that that was the sign that we all
should have bought meta before the
earnings because no CEO would ever do
that unless they knew they were going to
crush earnings but like again these
companies are still firing on all
cylinders at the moment and they're not
up and that's why like and it's met us
up small relative to after hours it
jumped like 11% or 12% but people are
having to question it because the I
think this it's going to play out over
months right now but I I'm Still
Standing that that Goldman report was
the turning point and I think the entire
conversation around generative AI has
changed and it's and in a in a good way
things are going to be questioned a
little bit
more I think it would be good if there
was more common sense around AI I just
don't know if it's happening let me
explain let me give you one more example
Nvidia right like they've benefited
greatly from what's happening this week
There's a Wall Street Journal story out
about
Nvidia big teex air race has one main
winner Nvidia and says it's nvidia's
Market everyone else just lives in it
though not nearly as well the Superstar
chipmaker hasn't participated in the lat
latest round of earnings reports uh but
the most dominant news of those reports
is great news for NVIDIA as Amazon
Google Microsoft and meta have all
reported significant jumps in capital
spending and it's mostly going towards
data centers and nvidia's AI systems and
Nvidia has had a bit of a pullback of
late but it's still a
2.75 $2 2.79 trillion do company with
room to run I mean it's cheap compared
to its earnings so you know I think if
we're going to think about like the
bubble stock it's Nvidia yeah but that
that's where what's so fascinating about
this moment is uh and and even in that
Goldman report that just trashed Jenner
to AI it like and honestly I thought it
was I thought it was good that it came
out but I actually thought that they
seem to be missing some very very clear
benefits that everyone has already able
to like show but the funniest part was
at the end of the report they're saying
Oh but you should still buy AI
infrastructure companies because even
though we're saying this technology is
not going to work out everyone's still
going to invest in it so you might as
well buy these companies and and it
actually makes sense because again all
the big tech companies are saying we're
going to still be investing massively in
this so I yeah Nvidia is still the
poster child for this if Nvidia ever
starts to have problems then we know
things are changing right what happened
to Intel have you been following this
their earnings came out yesterday I was
at the stock exchange uh for CNBC
closing bell and then of course went
into closing bell over time once all
these reports came in saw Intel hit and
we were just like holy crap yeah it was
down 26% today it's laying off 15,000
people it's going to pull back its
dividends this is disaster for Intel
have you been watching this at all I
mean I saw the I saw the price action
and I saw the the especially the layoff
announcement was interesting because
it's been a while since we've heard
about Mass layoffs at any of the in Tech
in general and this was the first time
in a while I heard I even saw an
announcement like that but I think
overall it's just in a company like
Intel should have been a leader in this
entire wave of AI investment in
structure they haven't been and I think
it's it's one of those things that it is
stuff is moving so fast that if you are
not and W which is Mark Zuckerberg's
argument that he made in the earnings
call around why they're investing so
much is that if you don't invest now or
you don't get it right you will be left
so far behind a few years from now that
you know like these tech companies will
become shells of their former selves and
I think Intel has not shown any clear
direction of who it's going to be in
this overall landscape whereas Nvidia
and everyone obviously everyone knows or
even like the global foundaries of the
world or or you know all these other
companies that are infrastructure
players the Intel no one knows who
they're going to be and the market
reacted accordingly yeah so I'll give my
Intel take here which is quite similar
to yours I mean we had Pat ginger on the
show and he was pretty impressive but I
think for Intel the problem is that
they're just and it might be cliche to
say it but they are stuck behind Nvidia
that's where all the money is going in
semis right now is into gpus and Nvidia
just has this Advantage between the
actual chips themselves the software
that's being used to train and the
networking between the servers which is
actually a key part of their advantage
that nobody talks about and it's just
very difficult to dislodge them that way
so Intel's really been able to unable to
compete with them on AI chips and then
you could say all right they have these
accelerators that you could use and
maybe you could train that way but this
is the other problem for Intel where
they would come and substitute where
people are looking for let's say cheaper
cost or you know some purpose buil
technology the big tech companies are
building that themselves you know Google
has a chip um and and all the others
have their own chips uh that they're
building like Microsoft is building its
own silicon and then you're trying to
come up against these companies and
there's just no room to
sell I think that's a fair read
foundaries take a long time to build
they're trying to do that too it's just
going to be forever yeah I think I think
that's a fairy that now their
competition isn't just infrastructure
it's the tech companies themselves and I
mean getting lost in those multiple
battle fronts of battle is a is a scary
place to be absolutely all right so
let's uh as we wrap up this segment like
it's we go deep and now let's take a
step back where do you think the economy
is going from here uh because we talk
for a long time about whether there's
going to be a soft Landing
and for a long time it seemed like there
would be or even a no landing and maybe
this is just the wheels touching down
right inflation's still low the market
the S&P 500 is still up 12% this year
every you know there's there's actual
Innovation and energy in the economy so
where do you think the next few months
take us okay I I don't want to be Jim
Kramer here and uh jinxing everything
but I'm G to say I I think this is going
to be just a healthy short-term
correction I think it's been a while the
vix wasn't above 20 in a couple of years
I think those this is the largest sell
since October 2022 I think there's a
need for a bit of a correction I think
it will be okay I think the underlying
story we've known the consumer slowing
down we've know if the FED cuts and
reacts accordingly which all signals are
pointing to I think things will
stabilize and maybe soft Landing maybe
kind of like just a short-term breather
overall but uh I mean obviously trying
to predict anything given the just how
complex the world is right now is a
difficult one over especially over the
next few months