You might enjoy r/betteroffline.
He is certainly big bear but makes some good points
I have been thinking about AI and big tech.
Mainly why are $AMZN, $GOOGL and $MSFT puting gains from their investments to earnings reports.
Then it hit me. It could be because OpenAI, Anthropic and other AI companies are most of their cloud customers.
But the way they are paying for it is by exchanging share in them for cloud credits. So they want to be seen making money when I'm actuality it's all paper gains.
To be fair they are also being paid money from these money loosing companies which they raised from investors and get from customers but they are being poured directly back to buy more compute with no value retained for shareholders.
This is creating the bubble mechanism connecting basically everything to only few companies.
Will productivity increase so much it's all worth it? Or is the time ticking for full blowout of OpenAI and Anthropic when it's time to pay for real costs of LLMs, when only people left paying are the users without any outside capital.
Take into consideration these two are projected to be 48% of $GOOG cloud for next year.
Real earners are $NVDA and other semis, for the time being atleast.
$AAPL is smart just hanging around and rewarding their shareholders with focus on their core business.
In my opinion it's not if but when these 3 will be left holding the bag.
They will still have their core business but now with bloated infrastructure, debt on balance sheet and diluted shares.
Are they really such an amazing investments? Or is it the best time to harvest the ripe fruit?
You might enjoy r/betteroffline.
He is certainly big bear but makes some good points
Apple all-in.
Apples stock already ran ahead of the EPS growth, it's not going to do much now for a while that's why it just dipped.
Good company, good stock, but it's quite expensive imo
If you want to exclude investment gains, just look at Operating Cash Flow The combined operating cash flow from Amazon, Google, Meta, and Microsoft is up 33.7% this quarter vs last year, accelerating from the 32% growth set in previous quarter
operating income is better
There's a metric for this and it's called Net Operating Profit After Tax (NOPAT).
"Circular financing" is the term you're looking for, no it's not just your opinion, yes that's exactly how it works.
Will productivity increase from AI? Yes, it's the user profiting from ai, not the providers. They keep bleeding money. Look at Kimi, DeepSeek and so on ... These may or may not be better then western models, but they are cheaper and the software even free. So the US companies are afraid of AI communism which doesn't compete with Western companies, these are here to destroy the market. Recently OpenAI and Antrophic wanted to go public with their IPO,s this year, the issue is they have to provide their balance sheets which most likely look more red then the Soviet Union.
Are they actually cheaper though? Or was the upfront cost just cheaper but they are actually more expensive to use and still not to the standard of western models? Because ultimately I think western companies would still prefer to have a higher upfront cost, be able to build off that more expensive foundation and then have cheaper continued use overtime. I could be misunderstanding though
Nobody was able to justify the AI spending - Neither Google, nor Microsoft nor Amazon.
They're fucked if they keep spending and they're fucked if they stop the CapEx because that way they're telling the world it was all for nothing. And people still give me the "but they're smart, surely they can't be burning money on useless infrastructure". Surely Meta didn't burn $80 billion on the Metaverse. Surely Microsoft didn't massively overpay to acquire Activision-Blizzard-King for $70 billion and surely Xbox can't possibly have a 3% profit margin (that's worse than treasuries btw) after so much investment. Surely Google is not known for cancelling almost every project they start to the point that there's a whole website called KilledByGoogle. But hey, maybe we just need another one or two trillion in CapEx... After all, everyone tells me that we're "still early". Even though it's been 3-4 years. We're just EARLY. That's it.
Then it hit me. It could be because OpenAI, Anthropic and other AI companies are most of their cloud customers.
Or it could be because they're following GAAP accounting standards.
gee how does that work
Google is making paper gains on their anthropic investment. The cloud investment is real. The demand is high because anthropic and openai are growing at unprecedented rates
Yeah but the funding comes from private investors, openai and anthropic doesn't have much of their own money that's the point. They have some subs and enterprise clients but the point is they are not profitable and most of their money comes from big tech. It's just going in circles with unlesr ROI. The tech is certainly real but does it justify this much money?
In addition to circular financing, look up what happens when a company invests multiple rounds of money into another company. For example, let's say Google invests $15 Billion in (startup) for 15% of equity. They Google later invests $1B for 0.001% of equity. The startup is "valued" based o the last investment. So $1B for 0.001% in accounting means a $1T valuation. Suddenly Google's original investment that was $15 Billion can now be claimed on Google's financial statements as worth $150 Billion. This is true even if the only thing that changed was Google investing a second time. (One caveat is the accounting rules change if Google gets to a 20% ownership level in the startup.) So when Google announces $80 Billion in "earnings" because their % of Anthropic is worth more, it might just be smokr and mirrors.
That's a good point, so all these headlines Google, Amzn, MSFT, Nvidia about latest round is basically propping their own paper gains. It will be interesting to see what happens. It's either AGI and huge productivity gains or years of financial ruins.
the paper-gains point is fair. goog, amzn, and msft have had earnings boosted by unrealized gains on private ai investments. those gains have been stripped out by the market already; the market is focusing on the earnings from ongoing operations. the big risk is that big tech is spending heavily on data centers while some of the current demand comes from ai companies that are still being funded by investors and by debt. if that funding slows before ordinary businesses are spending enough on ai to replace it, big tech will end up with excess capacity. this would also hurt nvda and the rest of the supply chain, so moving from the cloud companies into semiconductors won't help.
How big of an issue do you think it would be for Goog, Amzn and MSFT? Is it really that big issue of having an excess capacity? At worst they will be selling it without margin. But these companies still have very strong core business. I wonder how much of all this is priced in already. Maybe it is and if the AI is really that good and returns happen this is not priced in. Or maybe it's somewhere in the middle and the stocks will jump around 🤣.