Earliertoday, when previewing this week's earnings by the Mag 7 which account for over $10 trillion in market cap set to report Q1 results after the close on Wednesday, Goldman's Delta-One head Rich Privorotsky said that "Equities are being driven by one thing…AI spend",and warned that "it's hard not to respect the strength of the AI bid, but the velocity has been extreme.The upside surprise vs expectations has almost entirely come from AI spend…it’s the whole game."
Not only is the whole game, it is the one thing that has prevented the market from collapsing into the Iran war's stagflationary black hole, with"oil/product prices is sucking the oxygen out of the room...Europe underperforming, dispersion extreme."
But none of that matters as long as capex recipients, i.e., chip and semi stocks, keep surging on hopes and expectations that the LLMs and hyperscalers will keep pumping them full of cash day after day, for the unforeseeable future, which they have so far: recall that at the end of Q4, full-year capex estimates soared to a mindblowing $740 billion among just 6 hyperscalers (a number which is expected to rise to almost $1 trillion in 2027).
And at top of this trickle-down monetary waterfall is none other than Sam Altman's OpenAi, generously peeing money into the overeager mouths of hyperscalers around the globe, having built up staggering purchasecommitments to the tune of $1.5 trillion becausethere will never be enough compute.
Maybe Sam's right: perhaps there truly is an insatiable need for compute (unless of course one uses Chinese LLMs and/or RAM chips, both of which have a fraction of the hardware demands of the latest and greatest US technology).
The problem arises when one asksif OpenAI will ever be enough revenue to satisfy these astronomic commitments.
For much of the past year, that has been the core thesis behind countless AI bear cases: now that evenMichael Hartnett openly callstech a "bubble", the question is notifbutwhen, to which the bulls have calmly countered that as long as the drunken-sailor at the helm of OpenAi keeps spending at the rate he has been, the "when" isn't coming any time soon.
It now appears, however, that the"when"may have come much sooner than most thought.
According to the WSJ, OpenAI has recentlymissed its own targets for both new users and revenue,stumbles that have raised concern among some company leaders about whether it will be able to support its massive spending on data centers.
One of them is the company's finance chief: CFO Sarah Friar told other company leaders thatshe is worried the company might not be able to pay for future computing contracts if revenue doesn’t grow fast enough.In other words, that $1.5 trillion OpenAI had pledged to spend on various data centers, GPUs and memory chips... you can kiss all that goodbye.
Source: ZeroHedge News
