Axios - Investors were confronted this past week with four difficult realities that may fundamentally change the way they think about AI the business vs. AI the technology, Axios' Ben Berkowitz writes:
- 💰 AI is too expensive, say CEOs and even Microsoft itself.
- 🗑️ It's not paying off nearly as much as companies expected, per a new Bain study.
- ⛅️ Infrastructure demand is strong — but not as strong as the most optimistic wanted, as Broadcom showed with its "weak" forecast.
- 🏦 Financing that infrastructure is going to be more expensive for longer, with signs pointing to the Fed raising, not lowering, interest rates.
Why it matters: Those realities challenge assumptions that powered markets to historic heights over the past few years. It's hard to justify chip or memory stocks rising 1,000%+ in a year if the boom isn't what everyone assumed.
The costs of AI are now. The profits are later — maybe. That "maybe" is what's making people nervous.
- AI the technology has a bright future. But AI the business is starting to look like a bottomless pit — especially amid news that even some of the world's biggest companies are rushing to sell historic (and dilutive) amounts of stock to justify their expansion.
The market sold off Friday amid those jitters, with the tech-laden Nasdaq having its worst day in 14 months.
- Broadcom's tepid outlook wiped $444 billion off its market cap alone in just two days.
Friction point: Tech selling off weighs down everything else.
- As charts expert Matt Cerminaro (a.k.a. "Chart Kid Matt") noted Friday, the S&P 500 was down more than 2%, even though the majority of stocks in the index were actually up on the day.
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