No. of Recommendations: 5
<In a simpler time, this would have been called fraud. >
No, it's not fraud. The companies are buying and selling actual goods and services.
Nvidia and AMD sell chips. Oracle sells computers. CoreWeave is an AI-cloud infrastructure company that rents out data-center capacity. CoreWeave’s biggest customer is Microsoft, which is an investor in OpenAI, shares revenue with OpenAI, buys chips from Nvidia and has partnerships with AMD.
When Morgan Stanley analysts in an Oct. 8 report mapped out the AI ecosystem to show the capital flows between six companies — OpenAI, Nvidia, Microsoft, Oracle, Advanced Micro Devices and CoreWeave — the arrows connecting them resembled a plate of spaghetti.
The problem is that they are selling goods and services and making capital deals
with each other. The expected investments into AI infrastructure, developement and business-to-business spending is expected to be orders of magnitude higher than end-user spending.
According to Google Gemini (which is based on an article I read last week):
One analysis estimates that new AI data centers built in 2025 will incur $40 billion in annual depreciation while generating only $15 to $20 billion in total revenue (combining both enterprise and consumer) for the owners. The revenue would have to grow by tenfold or more just to cover the depreciation and achieve a target return on capital....
The AI build-out is so massive that the AI-related capital expenditures (i.e., the cost to build the capacity) have been reported to have contributed more to U.S. GDP growth in the first half of 2025 than all traditional consumer spending combined.
This illustrates a fundamental economic dynamic: the current growth is fueled by companies spending huge sums on infrastructure (CapEx), not by the economic activity generated by end-user purchases (consumption)... [end quote]
It's worth reading my questions and Gemini's answers in full.
https://gemini.google.com/app/5b59f7597eea1988The stocks of the tech companies in question all are grossly overvalued by traditional standards even if all their revenues led to actual end-user spending. The investments in AI resemble the investments made in internet infrastructure before the 2000 dot-com bubble burst.
Wendy
