Recession-Proof: Why Comparing the AI Boom to the Real Economy is a Big Mistake
Cash-Rich AI Giants: The Untold Story Behind Today’s AI Economy
The biggest mistake I’m seeing market pundits making is comparing the AI economy to the real economy.
Yes, it’s a fact …
If we look at the global economy, most areas are either in recession or heading towards one. China just announced fiscal stimulus and it’s likely America won’t be far behind.
Consumer discretionary stocks like Nike NKE 0.00%↑ , Lululemon LULU 0.00%↑ , Tesla TSLA 0.00%↑ , McDonalds MCD 0.00%↑ , Airbnb ABNB 0.00%↑ , have lagged the broader markets because their consumer is struggling.
My family is extremely blessed and we’re looking at $40 pizza nights and $150 grocery bills and looking for ways to save.
But that’s not the AI economy.
The companies racing to stay ahead in the AI race can afford to buy overpriced pizza for everyone in the neighborhood.
And pay for the grocery bill too.
At last check here’s the cash balance sheets of the companies behind the AI economy:
Google: $100B cash
Microsoft: $75B cash
Meta: $58B cash
Apple: $150B cash
This isn’t the Dot-Com boom.
The companies aren’t racing towards an invisible finish line. AI is merely an extension of each companies existing business unit.
And these business units are worth TRILLIONS of dollars.
Each company could merely pause the multi-billion dollar share buybacks they have in place and fuel AI growth for years.
As you know … these company’s can afford to buyback billions in stock, and spend billions on AI infrastructure without impacting the companies profitability much at all.
Over the past week we got further evidence (if you needed more) that the AI trade isn’t slowing down at all.
In fact …
It’s accelerating.
Microsoft MSFT 0.00%↑ announced a deal with Constellation Energy CEG 0.00%↑ to restart a shuttered nuclear energy facility in Pennsylvania.
Even after clearing regulatory permits and construction (which will likely take years) experts believe the power plant will only provide a fraction of the energy needed by Microsoft to power its AI applications.
That’s largely because next generation AI GPU’s made by Nvidia, AMD AMD 0.00%↑ and others require significantly more power to operate than previous generations.
Microsoft is making this move now because the company is desperate to maintain a leadership position in AI software and cloud services.
Aside from the energy demands, AI is requiring more & more memory. In order to make the large language models more sophisticated, companies have to jam exponentially more data through the data centers.
Micron MU 0.00%↑ reported earnings this week that blew away estimates. The shocking thing is, Micron hasn’t even fully scaled up its High Bandwidth Memory (HBM) offering.
HBM are the specialized memory chips that surround the GPU/TPU on the high powered Nvidia, AMD and silicon chips Wall Street has been buzzing about.
Much like energy, as demand for AI continues to grow - the demand for HBM memory grows.
Like I said, Micron isn’t even shipping HBM in large quantity yet. Here’s what the company said about it’s HBM ramp this week:
We feel good about where we are with our yields on HBM. We were able to achieve our goal for fiscal Q4 in terms of shipping several hundred million dollars worth of revenue.
Keep in mind Micron shipped $7.75B in revenue during Q4. Needless to say, the company is expecting massive growth from HBM in 2025.
Taiwan Semiconductor TSM 0.00%↑ announced its August revenue was up 33% versus last year.
TSM has a monopoly on manufacturing all of the cutting edge AI chips inside data centers.
Even OpenAI, the company that more or less launched this AI investment after releasing ChatGPT nearly 2 years ago, is ditching its “non profit” corporate structure.
Can anyone blame them?
I know as investors you’re tossed all kinds of information on a daily basis. The stuff you’re hearing about the real economy is … real.
Once red-hot real estate markets are cooling.
Unemployment is likely heading higher.
The Federal Reserve’s 50 basis point cut won’t trickle down to the real economy anytime soon.
If you believe the government data (I don’t) then the United States economy is just barely treading water.
China is already imploding.
But this isn’t the AI economy.
For that you have to look at the balance sheets of the world’s largest companies.
And unlike the sovereign governments and its citizens … they are flush with cash.