People are worried about the cost of AI
And: Don’t write Europe off
Welcome to Cautious Optimism, a newsletter on tech, business, and power.
Monday! Welcome to the week. Our economic calendar is here, in case you are just powering through your weekend inbox.
Everyone is worried about POTUS canning the head of the Bureau of Labor Statistics (BLS), with power-friendly CNBC writing with unusual clarity that the White House is struggling “to justify firing of BLS chief over weak jobs numbers.” JPMorgan wrote in a note that the firing of Commissioner McEntarfer “presents risks to the conduct of monetary policy, to financial stability, and to the economic outlook.”
Director of the White House Economic Counsel Kevin Hassett had to run cleanup for POTUS in the wake of the mess. You can judge how well he did over the weekend. In other words, it’s Not Good. But I keep telling myself that it’s a big economy out there, and not to worry too much. Now, to work! — Alex
📈 Trending Up: Understanding LLMs … Musk’s worth … that’ll fix it … Lyft’s self-driving hopes … Chinese open-source AI models … San Francisco … no, really …
📉 Trending Down: US-Swiss relations … West Bank sovereignty … entrepreneurship in China? … IT gigs in India … American democracy … US-India relations … US-China relations … racy games …
Over in public-market land, Spotify is raising prices around the world. Cusomters in “multiple markets across South Asia, the Middle East, Africa, Europe, Latin America, and the Asia-Pacific” will see their music subscription costs rise from €10.99 to €11.99, for example.
Why the hikes? Spotify’s slowing growth in its most recent quarter led to a selloff of its equity; up go the prices! Here’s hoping that artists get their usual 65% or so of the new, higher consumer fees.
Elsewhere, crypto exchange Bullish has set a $28 to $31 per share IPO price range. It would be worth $4.2 billion at the top-end of its range, a bonkers multiple for its adjusted revenue results. Especially so in the wake of Coinbase’s earnings which led to its share price dropping sharply.
Still, in the wake of Figma’s gob-smacking IPO last week, why not take a shot?
People are worried about the cost of AI
Growth absolves all sins
And no, we don’t mean AI’s impact on your familial budget because you cannot stop paying for multiple AI companies’ consumer subscriptions. Because you need them for research.
No, people are worried about the cost of AI infrastructure. Investor and analyst Paul Kedrosky calculated that corporate spend on new gear to run AI compute workloads (AI capex) is worth around 1.2% of GDP this year. That’s a lot, and is more than the 1.0% percent of GDP spent in 2020 on what Kedrosky calls “the 5G/fiber frenzy.” We’re still far under the 6.0% of GDP spent on railroad capex in the 1880s, he points out.
For fun: If you want more history of speculative booms going splat, look up Canal Mania in England circa 1790, which features similar vibes to the American railroad boom.
As a percentage of GDP, we’re spending noticeable share on AI capex. This is great news for Nvidia — and anyone who owns an index fund of American equities — but folks are worried that the companies doing the spending (instead of the selling) are getting ahead of their skis.
Who is at risk? A host of companies, but in two risk tiers. First, the hyper-scalers: