A Brittle House Of Cards

Below are some of the most interesting things I came across this week.

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Nobel laureate Daron Acemoglu writes, “If my suspicion is correct, what we are dealing with is not a model racing toward superintelligence, but a brittle house of cards that becomes more and more likely to malfunction and collapse as we demand more from it.”

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Greg Ip asks, “Is it plausible that Americans will spend as much of their income on AI as they do on food? …Whether or not you think 9% of GDP is right, you have to care, because this figure isn’t some fever dream: it is implicit in the dollars that investors and companies are committing right now.”

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Ares reports, “We documented well more than 100 digital-infrastructure financings from just the past twelve months… Despite different issuers, different structures, different rating agencies and different credit markets, all of the risk converges on just eight names: Meta (META), Oracle (ORCL), Microsoft (MSFT), Amazon (AMZN), Google (GOOGL), Nvidia (NVDA), and, on a look-through basis, OpenAI and Anthropic.”

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As to the circularity of all of this financing, the BIS notes (via Alphaville), “The parallel with the telecom boom of the late 1990s is instructive: upstream equipment vendors financed network operators so they could buy the vendors’ equipment. This meant that part of the equipment vendors’ reported sales was being funded by the vendors themselves.”

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Finally, MarketWatch reports, “The 20 top-performing stocks in the S&P 500 — a smattering of hot AI stocks, mostly in the tech and industrials sectors — have contributed $1.7 trillion to the market capitalization of the S&P 500 since Aug. 31, according to a Dow Jones Market Data analysis, while the bottom 480 stocks have shed about $1.9 trillion in value.”