Earnings season for the mega sized tech companies commenced yesterday as TSLA reported mixed earnings, sending shares lower by 3.5%.
As widely discussed, the mega techs have completely dominated the markets since COVID, if not before. The attention (hype) around AI is intense.
Some mind-numbing data published by Citicorp about AI. According to the Bank, OpenAI will have to spend over $1 trillion to deliver its promised computing power in the next five years.
The amount of energy they need to deploy is equal to 250 gigawatts of computing capacity (by 2033) and would cost at current prices over $12.5 trillion. This is equivalent to about 40% of total annual GDP.
As for the $1 trillion of capital expenditures that OpenAI has committed to, the company projects it will generate approximately $163 billion in revenue by 2030.
Writing it differently, if OpenAI devotes 100% of its revenue to capital expenditures, there would be no money left for anything else, leaving about $837 billion short of paying for their capital commitments.
Obviously, the capital markets [or other companies…aka circular financing] will have to fund these expenditures.
Many AI and mega tech companies are already priced that the above will occur. Wow! And then there are the energy/power issues including the lack of electrical capacity.
How accurate is Citi’s outlook? Perhaps the only concrete comment to make is there will be considerable investment in AI, the outcome not known much less the demand for power and what will fuel this power.
Equites led by the mega caps slide yesterday. The catalysts were NFLX’s quarterly results and the reports that the Trump Administration is weighing restriction on software exports to China.
Gold was choppy, nominally extending the previous day’s rout. Treasuries were essentially flat and oil advanced on news that the Administration convinced India to stop buying Russian crude.
Last night the foreign markets were up. London was up 0.65%, Paris up 0.57% and Frankfurt down 0.08%. China was up 0.22%, Japan down 1.35% and Hang Seng up 0.72%.
Futures are insignificantly lower on profit, trade and monetary policy jitters. Oil is up over 5% as the Administration announced sanctions on Russia’s biggest oil companies. The 10-year is off 10/32 to yield 4% as the increase in oil is resurrecting inflation fears.
