alt Hacker News"JPMorgan calculated last fall that the tech industry must collect an extra $650 billion in revenue every year — three times the annual revenue of AI chip giant Nvidia — to earn a reasonable investment return. That marker is probably even higher now because AI spending has increased."
That pretty much tells you how this will end, right there.
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Total US GDP is ~31 trillion, so that's only like 5%. I think it's conceivable that AI could result in ~5% of GDP in additional revenue. Not saying it's guaranteed, but it's hardly an implausible figure. And of course it's even less considering global GDP.
It's crazy to me how many flags are being thrown in this investment spree. Repeating the same mistakes as before (2000). Big companies will be hit hard when they can't show for what they spent shareholders money on. The run will be large and impactful.
> "must collect an extra $650 billion in revenue every year" paired with the idea that automating knowledge work can cause a short-term disruption in the economy doesn't seem logical to me.
I find it funny that Microsoft is scaling compute like crazy and their own products like Copilot are being dwarfed by the very models they wish to serve on that compute.
The future is not looking bright at all....
I only have a meme to describe what we are facing https://imgur.com/a/xYbhzTj
If 1 or 2 of the 5 big spenders starts having big losses, things will be interesting. Their market caps will be a fraction of the current overinflated values.
Meanwhile Apple is only spending 1 billion a year to use Google's models.
I run the numbers on hyperscaler AI capex and the math is not going to work out.
With these assumptions:
– Big 4 keep spending at current pace for 3 more years
– Returns only start showing after aprox 2 years
– Heavy competition with around 20% operating margin on AI and Cloud
– Use of 9% cost of capital
This is the current reality:
AWS aprox $142B/yr
Azure aprox $132B/yr
Google Cloud around $71B/yr
Combined its about $330B to $340B annual cloud revenue today
And lets says Global public cloud market of $700B total today.
To justify the current capex trajectory under those assumptions, by year 3 the big hyperscalers would need roughly $800B to $900B in new annual revenue just to earn a normal return on the capital being deployed.
That implies combined hyperscaler cloud and AI revenue going from: $330B today to $1.2T within 3 years :-))
In other words...Cloud would need to roughly do 4× in a very short window, and the incremental revenue alone would exceed the entire current global cloud market.
So for the investment wave to make financial sense, at least one of these must be true:
1 Cloud/AI spending globally explodes far beyond all prior forecasts
2 AI massively increases revenue/profit in ads, software, commerce and not just cloud
3 A winner takes all outcome where only 1 or 2 players earn real returns
4 Or a large share of this capex never earns an economic return and is defensive
People keep modeling this like normal cloud growth. But what we have is insanity
I read "Devil Take the Hindmost: A History of Financial Speculation" last year, and the current AI bubble is like getting a front row seat to the next edition being written.
The really stupid bubbles end up getting themselves metastasized into the public retirement system, I'm just waiting for that to start any day now.
The question is not "is it a bubble". Bubbles are a desirable feature of the American experiment. The question is "will this bubble lay the foundation for growth and destroy some value when it pops, or will it only destroy value"
Nvidia invests $100bn in OpenAI, who buy $100bn of Nvidia chips, who invest the $100bn revenue in OpenAI, who buy $100bn in Nvidia chips, and round it goes. That's an easy $600bn increase in tech industry revenue right there.