Photo by Igor Omilaev on Unsplash
 

Stock market gains are fueling wealthy consumers, investments in artificial intelligence, and continued economic growth.

Many consumers, having expired savings accumulated during the COVID shutdown and uneasy about AI threatening their jobs, are trimming their sails.

But the wealthiest 10%, who account for almost half and a growing share of household spending, are reaping huge stock market gains and opening their wallets.

This year, stock market appreciation among the top 30 AI companies has created $5 trillion in additional wealth.

That’s about half of the overall $10 trillion stock market gain, and the “wealth effect” should boost consumer spending by $350 to $500 billion.

That’s why we see lines to enter Chanel boutiques at malls, while Macy’s shuts its stores.

Uncertainty about President Trump’s tariffs is making businesses reluctant to invest outside the AI space.

So far this year, computers, software, and data centers have contributed most of the new growth in business investment.

Investors whose sentiments drive stock prices up or down are getting nervous because so many of the gains are concentrated among the Magnificent Seven—Alphabet, Amazon, Apple, Meta, Microsoft, Nvidia, and Tesla.

In turn, those are plowing much of their profits into speculative ventures like OpenAI and in-house AI, whose potential for monetization may not justify their scale.

Next year, Alphabet, Microsoft, Amazon, and Meta expect their AI investments to exceed $400 billion.

Based on all the hype, OpenAI has a market capitalization of about $500 billion, but should only have $13 billion in revenue this year, and projects operating losses will swell to $74 billion by 2028.

The deals it has made for cloud and computing capacity commit it to spending about $1.4 trillion over the next 8 years, raising questions as to whether it will ever turn a profit.

OpenAI sells business applications, but a good deal of its resources and those of firms like Alphabet and Meta focus on achieving Artificial General Intelligence—machines that can think as well as human beings and much more rapidly too.

Imagine Apple’s Siri with the IQ of a Noble Laureate—with specialized editions giving your child Taylor Swift and Albert Einstein as music and physics tutors.

At the center of all this are the remarkable chips designed by Nvidia and competitors like Advanced Micro Devices.

Nvidia is the world’s most valuable company, but how much of its projected sales are authentic?

Recently, it struck a deal to invest $100 billion in OpenAI, which help Sam Altman build his $1 trillion data centers empire.

It will cost at least that much to father a Swift or Einstein and make them as ubiquitous as a Ford F-150.

In return, OpenAI is committed to spending a good deal of that sum on Nvidia chips.

This pattern repeats quite a bit in Nvidia’s investments in firms that build data centers and develop specialized AI agents that raise business productivity by performing discrete tasks like computer coding and legal research.

Look at what’s going on.

Nvidia is paying OpenAI’s to purchase its chips. Those have a useful life of perhaps 5 years, and OpenAI likely still will not have achieved profitability.

Nvidia gets to book sales on its income statement and assets on its balance sheet in the form of OpenAI stock. Those shares are only worth something if OpenAI indeed delivers Einstein.

If not, Nvidia has squandered $100 billion on eventually worthless stock.

Less noticed, OpenAI’s principal competitor, Anthropic, is decidedly more commercially minded.

It has larger market shares for coding applications and enterprise sales of large language models than OpenAI, Google, and Meta and has avoided OpenAI’s forays into image and video generation, which require more data center capacity.

According to an analysis by the Wall Street Journal, it has a decent chance of turning a profit by 2028.

Palantir is also more focused on applications to help government and business clients integrate and analyze complex datasets to assist in operational decision making. Its AI platform helps organizations build apps, automate tasks and develop their own specialized AI agents.

In the 3^rd quarter, it had $1.18 billion in sales—a 68% year-over-year gain—and $475.6 million in profits with a diversified client base.

I have no doubt that OpenAI will one day be a profitable company, but it may first have to go through bankruptcy reorganization.

Otherwise, it could be dismembered with its various intellectual property sold to firms like Palantir and software designer Salesforce.

In the end, the economy will gain from AI as much as it has from the internet, and investors should remember that the Mag7 have growing profits and can absorb some losses without sinking.

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