Most sectors of the economy, and most of the stock market, are going nowhere now. The best companies are growing, and their earnings are rising. But that’s because of efficiency, cutting costs and (especially) cutting people.
Even the Cloud Czars are cutting back, and those on the Left don’t like it. By reducing headcount (on redundant projects) and subtly increasing costs (like adding ads), the Czars are raising the money needed to keep profits, and their stock prices, rising. You can dump on this all you want, but the Cloud needs cash flow to grow, and it’s growing faster than ever thanks to AI.
About $74 billion was spent on cloud infrastructure in the fourth quarter of 2023, and that is expected to triple in the next four years. But the number of cloud data centers isn’t rising as it once did. Instead, they’re buying Nvidia chips and software, which is why Nvidia is now worth nearly as much as Google (and more than Amazon). Without AI, analysts were predicting a drop in data center spending last year.
Cloud Inflation
“Traditional” cloud use cases, like media, office functions, and mobile apps, are mature now. Without AI, growth would be left to war, the Administration’s green investments, and consumer spending. We might have seen deflation, and we might have seen a recession. With AI, it was all good news. America’s share of the global economy is nearly 25%.
Best of all is where we are in the AI cycle. We’re in the investment stage, in the hype stage, in the stage of inflated expectations. No one’s AI has killed anyone yet. (It will.) No AI companies have failed. No one in the AI space looks clueless yet. That stage will come. It always does.
When and how it comes is an open question. The first domino to fall will be Nvidia. If ZLUDA, which lets AMD chips run Nvidia’s Cuda software, starts to gain traction, that could start it. Meanwhile, the excitement around AI chips is just contagious. Look at what AMD and ARM stock have been doing.
Even if the hype train continues to roll, the value of Nvidia and the other chip players will fall once Intel gets its new fabs into production, sometime next year. This will dramatically increase supplies, creating price competition throughout the AI space. And it is price competition that investors are looking for as their signal to sell.
