New Short Thoughts article - The AI Cloud Oligopoly, Stages of Grief & a Flashing Bear Indicator
Denial is most easily found in market breadth indicators. I follow one in particular that seems to give a strong signal every few decades. https://x.com/i/article/2108028341517242368
Short Thoughts: The AI Cloud Oligopoly, Stages of Grief & a Flashing Bear Market Indicator
Other Peoples’ Money, Market Breadth & Market Structure, The Difference This Time
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I have recently considered that the tech giants, but for Apple, are spending as if their lives depended on it when their lives clearly do not.
Monopolies almost by definition need not spend wildly as if their lives depended on it.
This deserved no small further contemplation, although rather quickly it dawned on me that they expect this just to be another monopoly rent they collect, that they collectively have the expectation the government will tolerate their oligopoly on AI.
Nay, will tolerate and fear it.
So the evil gambit is to create and to allow this AI to grow on their machines, where they will threaten to control both economic and political forces greater than humanity has ever seen, overwhelming any politician’s, or politicians’, might.
Why are OpenAI and Anthropic and Oracle also spending so much? Surely they are not monopolies?!?
No, but they intend to be part of the oligopoly. None can imagine breaking the dominance of a Microsoft, Amazon, Google, or Meta within each silo.
However, there is clearly an opportunity to join in that dominance under cover of a new paradigm. The power and riches expected by these companies are evidently so great that even Larry Ellison was seduced to bet his company on it.
This brings new meaning to technocracy and whether such is what we face. What is really scary is that other than the grab for market power, all this spending does not have a defined goal or economic end-point. As such, the consequences are likely unknowable to all. Yet they do it anyway.
The governments most interested in this technology seem to be the autocratic ones and the United States. A good set-up for a lot of drama, if not terror.
Thankfully, I give these companies less credit than all that. I grant them the craven desire to expand a monopoly, to join an oligopoly. But this is a want, not a need, and human thought is far too redundant for what is being built.
So this may be how they think, but that does not mean this is how it will go. Ultimately, compression will do its deed, and much of what is being spent will be just so much sunk cost.
Data Center Financing at Risk
Meanwhile, I am hearing of creaks and groans – and some loud snapping and crackling. I speak of valuation marks in the private equity and private credit arenas. We’ve moved shadow banking offshore and reinvented the role of insurance companies.
These noises are so loud that I can hear them way out here.
I therefore know that Wall Street is hearing them. Wall Street knows how valuable the PE/PC/Insurer financial pyramids are to the financing of the AI buildout.
Again, I have spent parts IV and V of the Heretic’s Guide, as well as much of a Short Thoughts and a Hystory Rhymes, on this idea of growing leverage in the buildout of AI data centers, which fundamentally conflicts with financing timelines.
Below I’ll let slip a slide from Part VI, still in development, which outlines how those creaks and groans will transmit back to the data center buildout. People say this time is different. This is how it is different. Not a good thing.
Not to mention, long-term rates are rising before the timelines have a chance to play out at all.
If Wall Street understands, and hears the same nasty noises I do from beneath the preternatural calm of equity markets, then why is the bull run to new highs so well-affirmed, well-accepted, and well-projected?