This is a huge week.
Earnings are coming from Microsoft on Tuesday, Meta on Wednesday, and Apple and Amazon on Thursday.
They’re all investing massively in AI generally and chips from Nvidia specifically. How much? We’ll hear more this week.
We hear two stories — They’re investing like crazy. The returns from their AI investments are lagging.
Surprise. It’s all new and there have been huge runups already in stock prices.
Me? Whenever I loosen up some cash from dividends I invest it in Apple, Amazon and Nvidia.
Meantime, the Economist has a piece this week, which includes this chart:
Here are words from the piece.
“The risk of under-investing is dramatically greater than the risk of over-investing,” said Sundar Pichai, the boss of Alphabet, on an earnings call last week. He, like lots of executives nowadays, was talking about artificial intelligence (AI). More specifically, he was talking about building more AI data centres to serve the customers of the tech giant’s cloud-computing arm. The sums involved are eye-popping. Alphabet’s capital spending is expected to grow by about half this year, to $48bn. Much of that will be spent on AI-related gear.
Mr Pichai is not alone. New Street Research, a firm of analysts, estimates that Alphabet, Amazon, Meta and Microsoft will together splurge $104bn on building AI data centres this year. Add in spending by smaller tech firms and other industries and the total AI data-centre binge between 2023 and 2027 could reach $1.4trn.
The scale of this investment, and uncertainty over if and when it will pay off, is giving shareholders the jitters. The day after Alphabet’s results the Nasdaq, a tech-heavy index, fell by 4%, the biggest one-day drop since October 2022. This week analysts will pore over the quarterly results of Amazon and Microsoft, the world’s two biggest cloud companies, for clues as to how their AI businesses are faring.
For now, the tech giants show little inclination to pare back their investments, as Mr Pichai’s remarks show. That is good news for the myriad suppliers that are benefiting from the boom. Nvidia, a maker of AI chips that in June briefly became the world’s most valuable company, has grabbed most of the headlines. But the AI supply chain is far more sprawling. It spans hundreds of firms, from Taiwanese server manufacturers and Swiss engineering outfits to American power utilities. Many have seen a surge in demand since the launch of ChatGPT in 2022, and are themselves investing accordingly. In time, supply bottlenecks or waning demand could leave them over-extended.
ai investment can broadly be split into two. Half of it goes to chipmakers, with Nvidia the main beneficiary. The rest is spent on makers of equipment that keeps the chips whirring, ranging from networking gear to cooling systems. To assess the goings-on along the ai supply chain, The Economist has examined a basket of 60-odd such companies. Since the start of 2023 the mean share price of firms in our universe has risen by 106%, compared with a 42% increase in the s&p 500 index of American stocks (see chart). Over that time their expected sales for 2025 climbed by 14%, on average. That compares with a 1% increase across non-financial firms, excluding tech companies, in the S&P 500.
The biggest gainers were chipmakers and server manufacturers… Nvidia accounted for almost a third of the rise in the group’s expected sales. It is forecast to sell $105bn of AI chips and related equipment this year, up from $48bn in its latest fiscal year. AMD, its nearest rival, will probably sell about $12bn of data-centre chips this year, up from $7bn. In June Broadcom, another chipmaker, said that its quarterly AI revenues jumped by 280%, year on year, to $3.1bn. It helps customers, including cloud providers, design their own chips, and also sells networking equipment. Two weeks later Micron, a maker of memory chips, said its data-centre revenues had also jumped, thanks to soaring AI demand.
Companies that make servers are also raking it in. Both Dell and Hewlett Packard Enterprise (hpe) said in their most recent earnings calls that sales of AI servers doubled in the past quarter. Foxconn, a Taiwanese manufacturer that assembles lots of Apple’s iPhones, also has a server business. In May it said its AI sales had tripled over the past year.
You can read the entire Economist piece here.
Saving shekels on home insurance
My favorite insurance broker, Matt Wood of Metz, Wood in Chatham, NY, tells me there are a few ways to save on your home insurance:
+ Install a water cutoff system. Saves on floods. We have Moen. It’s great.
+ Have your home monitored by an on-line monitoring service that doesn’t require a pricey landline. SimpliSafe is an approved alarm provider. It provides centrally monitored fire and burglar alarms. About $1 a day.
You get discounts by providing certificates from SimpliSafe and Moen.
+ Increase your deductibles. You don’t want to treat your insurance as a home maintenance policy for every little thing that goes wrong. Increasing to a $5,000 or $10,000 deductible will result in meaningful savings, and prevent you from having small claims on your record.
+ Combine your insurance policies. The most significant benefit that insurance companies offer is a portfolio discount for doing all of your insurance policies together.
+ Work with an independent agent who represents many reputable insurance companies. A good independent agent will monitor your account for any changes, and will be able to move you to another provider if you face a large premium increase or your provider drops out of the market.
Watch the Olympics streaming
You need Peacock Premium Plus for $14. It gets rid of the irksome ads.
Subscribe and then cancel. Otherwise you’ll be billed forever. I use my X1 credit card (now owned by Robinhood) which allows me to create a one-time, single use charge card. Cancels itself after the first charge. Really useful.
Upcoming immigration crisis
Venezuela’s Maduro faked his re-election this weekend. Surprise. Surprise.
A quarter of Venezuela have already left. With this fraud, another quarter may leave, Many will arrive at our southern border.
Back in April the New York Times wrote:
It’s a stark illustration of the limits of American leverage. Dictators do dictatorship, whether they are under U.S. sanctions or not. In many cases, sanctions tighten their grip on power. There simply aren’t many sharp tools in the diplomatic toolbox for changing another country’s politics. Individual sanctions on people in the Maduro regime would avoid the widespread collateral damage, but many of them are already on the sanctions list.
Favorite cartoons
Same old stuff
+ My friends are falling and breaking bones. They end up in hospital. And hospital is miserable.
+ Many friends carry their stuff in bags. They should carry their stuff in backpacks, like their grandchildren
+ Putting your heavy stuff into an airline’s overhead rack is a recipe for a thrown back. Ask one of the young fit men to help. That’s why God made them.
+ Your family doctor knows diddly squat about moles on your skin. Go to a dermatologist. I had a friend whose family doctor told him that the mole on his back was fine. He died six months later from melanoma.
+ Three things will kill you — eating too much, not exercising and stressing over Nvidia’s stock. Sadly you have to wait until Nvidia’s net earnings report.
That’s it for today. I’m going to the Olympics on Wednesday. — Harry Newton
