You need to go back to some dark periods of tech history to understand why the Cloud Czars, and their Wannabes, are in such a frenzy over leadership in the AI market. (Image from DeepAI.)
Set the Wayback Machine to the Year 2001!
The dot-com era is over. We’re in the dot-bomb era. Thousands of companies have begun to collapse, stars snuffed out one-by-one. Webvan. Pets.Com. CMGI. (No, the original one, now SteelConnect.) Companies held up exclusively by market cap died.
It was the companies held up by customer loyalty and market share that survived. These companies made it into the Cloud era. Google. Amazon. Microsoft. The field was so hammered that Facebook, which didn’t exist in 2001, could become a Cloud Czar by simply understanding the game and taking risks to play it.
Who’s winning now?
On the consumer side it’s ChatGPT. On the enterprise side it’s Anthropic. Note who’s not there. Microsoft. Google. Meta. As it was before, the new game creates new winners, and no mere capital advantage guarantees success.
If you can’t get the software, how about capturing the channel? That’s where the frenzy over data centers comes in. Amazon, Microsoft, and Google led the Cloud into the data center era. They still lead. Oracle is trying to catch up by lining up big customers with exclusive contracts, based on promises it hopes to meet. We’ll see.
In this new world Elon Musk, the world’s wealthiest man, is a niche player.
All these companies, and more, are spending money on Nvidia chips and software just as fast as they can. AMD and Qualcomm are trying to compete for that other 10% of the market.
The AI Cloud Frenzy
Cloud Czars have gone well beyond checking under the seat cushions, laying off employees and raising prices on older services for the cash needed in their AI Cloud frenzy. (Chart from Wolf Street.)
They’re debasing global markets and the national currency.
At the start of the year the “dollar index,” a measure of its strength against all other currencies, was at 108. Now it stands at 98. Unless your net worth has increased 10% this year, you’ve lost ground. The trend is down.
The wealth of the Cloud Czars is measured in market cap. As I’ve written before, this is a very fragile soil. When stocks trade lower market cap dollars disappear, just like home values when “comparable sales” don’t hold up.
The Czars need their stocks to keep rising, to fund their frenzy. The rest of the market is being destroyed. You can’t get a return on “real economy” stocks. Costco is down, from over $1,000/share to $930. Nike remains moribund despite improving results. The same is true for Pepsico. (These are just three stocks I own.)
If the only thing going up are Cloud stocks, then you must be in Cloud stocks to make money. It’s not just the Czars themselves, but the Cloud auxiliary – companies like Corning, Cloudflare and Palo Alto Networks that feed the cloud. They’re all up.
Investors should remember that all our gains in stocks are tentative. You don’t have them until you sell them. You could take out a loan based on the value, as the billionaires do, but then you have a debt, not just cash. So long as AI companies keep going up investors seeking retirement gains have no choice but to stay in the game.
Why Is There Air
Here’s more fuel for the fire. The alternative to owning stocks are bonds, and interest rates there are falling. A few months ago, I was able to buy U.S. government debt for a 5% return. Now it’s 4%, and the Fed is dropping rates, despite inflation at 3% and edging up.
Is that debt safe? Not after the bubble pops.
People worrying about the national debt have a point this time. It jumped $1 trillion in just a few months. The growth isn’t slowing.
What happens to the bond market when money disappears from stocks and houses? We can print more money, but we can also become Argentina, if no one wants our dollars. The world has been working hard this year to not want our dollars. America’s Temper Tantrump has lost us all our friends in this world. A stock crash could thus lead the government to default on its debts.
We’ve defaulted before. In the 1830s. It took a decade to recover. We nearly did it again in the 1890s. Back then we needed to borrow gold from the Rothschilds and J.P. Morgan to stay solvent. Protections built into the system to prevent such events are being systematically destroyed in the AI Cloud Frenzy.
The coming crash could be much, much worse than what happened in 1929.
The Czars’ Hope
Cloud Czars hope to build so much productivity into AI systems that the crash won’t happen. But LLMs lie. Vibe coding doesn’t work. AI agents replace good phone operators with incompetent ones. (Picture from Microsoft Co-Pilot.)
AI may be a savant, but it’s an Idiot Savant. It’s an autistic child, and a self-interested nihilist. It’s got problems we’ve barely begun to address. Only people can address those problems.
We jumped into this AI nonsense because we could. Now we can’t get out if we try.
Sure, we’ll get rid of Trump and all his Trumpkins when the collapse happens. But what we’ll be left with could be a second Great Contraction. Between 1929 and 1954 the Depression, the War, and Recovery wiped out most big fortunes.
People like Mark Zuckerberg and Elon Musk are latter day Louis XVs.
Apres moi, le deluge, Elon. Google it. And Google what came soon after.
