If you were hoping I had the answer, well, I’d lose a stock-picking contest with a dart-throwing monkey so best not take investment advice from me. But someone who might know is Michael Burry.
Who, I hear you asking, is Michael Burry?
He was played by Christian Bale in The Big Short; a contrarian financier who backed a massive play shorting funds exposed to the housing market before the GFC. He made himself and his investors rich; just before they went broke holding onto what looked like losing positions.
Burry believes that firms like Nvidia are overpriced and he has his reasons. Nvidia make the chips that power the AI revolution and, currently, has around US$130 billion in revenue with about half of that is profit. The firm has a market valuation of US$4.7 trillion. Yes. Trillion. For perspective, the US GDP is around US$35 trillion.
Beside Nvidia are colossal firms like Amazon, Google and Microsoft who are building the infrastructure to support an anticipated surge in cloud computing to service an anticipated surge in the use of AI.
Except. Burry has a theory that the cost of this infrastructure is being underpriced in low depreciation schedules and that Nvidia’s margin will become eroded as the competition learn how to build an equally impressive mouse-trap.
Burry has placed a US$1 billion bet of his own and investors money on shorting Nvidia and a similar firm. But. He’s become a bit of a shepherd who keeps spotting a wolf. He has predicted six of the last two recessions.
He was played by Christian Bale in The Big Short; a contrarian financier who backed a massive play shorting funds exposed to the housing market before the GFC. He made himself and his investors rich; just before they went broke holding onto what looked like losing positions.
Burry believes that firms like Nvidia are overpriced and he has his reasons. Nvidia make the chips that power the AI revolution and, currently, has around US$130 billion in revenue with about half of that is profit. The firm has a market valuation of US$4.7 trillion. Yes. Trillion. For perspective, the US GDP is around US$35 trillion.
Beside Nvidia are colossal firms like Amazon, Google and Microsoft who are building the infrastructure to support an anticipated surge in cloud computing to service an anticipated surge in the use of AI.
Except. Burry has a theory that the cost of this infrastructure is being underpriced in low depreciation schedules and that Nvidia’s margin will become eroded as the competition learn how to build an equally impressive mouse-trap.
Burry has placed a US$1 billion bet of his own and investors money on shorting Nvidia and a similar firm. But. He’s become a bit of a shepherd who keeps spotting a wolf. He has predicted six of the last two recessions.
And then we have the firms building the software that drives AI. Anthropic that builds Claude, Open AI with Chat GPT, with Google, Meta and Elon Musk pouring multiple billions creating machines that can talk back to us.
Will any of this make any money? I don’t know. Mostly I use it to make images for fun and, commercially, we have found it very effective at searching massive email databases of failed firms looking for incriminating evidence of malfeasance.
Regardless; there are too many firms trying to be the next Amazon. Including Amazon. Some of them are going to become the next Netscape, WeWork or Jawbone or even Theranos.
There are economics of scale that favour incumbents. The AI that wins will attract users, giving it an edge in research and development, giving it more users and a virtuous cycle will entrench one winner. For a while at least; until a disrupter upends their business model as brutally as Starlink is breaking rural internet providers.
Meanwhile, us consumers do not have to risk anything. This massive gamble is happening with other people’s money. When the dust settles, we get to purchase the winning product for a monthly subscription that we won’t even notice.
We may notice an underperforming quarter in our KiwiSaver when one of the current giants fall but the inconvenience will otherwise go unnoticed. For those who have invested billions in capital and decades of toil, the stakes are higher.
Which bring me to today’s sermon. Failure is a necessary pre-requisite for development. Some ideas work and some do not and the only way to know is to test them in the market. Insolvency is not a bug in the capitalist system. It is a feature. For every success such as Twitter, there are a dozen Tumblrs lost in the commercial wastelands. Along with the investments put into them.
Those tiny few who survive the turmoil, stress, ulcers and thoughts of despair that can take even small business owners into the darkest of places, are necessary for the consumer, medical and technological marvels that make modern life miraculous.
It has become trendy across the Pacific to assert that billionaires are unnecessary and this is a perspective that finds a willing reception in these islands. The Leader of the Opposition has recently discovered socialism.
I guess it is nice he is taking an interest in economics but, well, it would be better if he didn’t start in the fiction section.
Progress is a thousand business owners groping in the dark for a path forward and most of them becoming trapped in dead ends while a handful find a way forward. And lead the rest of us towards the light. State run systems that do not allow failure, such as government run schools and hospitals, never innovate, never advance, never improve.
The incomprehensible advance in AI that has become embedded into our culture, schools and offices isn’t a miracle. It is the inevitable result of the most powerful economic system for improving the lives of humanity......The full article is published HERE
Will any of this make any money? I don’t know. Mostly I use it to make images for fun and, commercially, we have found it very effective at searching massive email databases of failed firms looking for incriminating evidence of malfeasance.
Regardless; there are too many firms trying to be the next Amazon. Including Amazon. Some of them are going to become the next Netscape, WeWork or Jawbone or even Theranos.
There are economics of scale that favour incumbents. The AI that wins will attract users, giving it an edge in research and development, giving it more users and a virtuous cycle will entrench one winner. For a while at least; until a disrupter upends their business model as brutally as Starlink is breaking rural internet providers.
Meanwhile, us consumers do not have to risk anything. This massive gamble is happening with other people’s money. When the dust settles, we get to purchase the winning product for a monthly subscription that we won’t even notice.
We may notice an underperforming quarter in our KiwiSaver when one of the current giants fall but the inconvenience will otherwise go unnoticed. For those who have invested billions in capital and decades of toil, the stakes are higher.
Which bring me to today’s sermon. Failure is a necessary pre-requisite for development. Some ideas work and some do not and the only way to know is to test them in the market. Insolvency is not a bug in the capitalist system. It is a feature. For every success such as Twitter, there are a dozen Tumblrs lost in the commercial wastelands. Along with the investments put into them.
Those tiny few who survive the turmoil, stress, ulcers and thoughts of despair that can take even small business owners into the darkest of places, are necessary for the consumer, medical and technological marvels that make modern life miraculous.
It has become trendy across the Pacific to assert that billionaires are unnecessary and this is a perspective that finds a willing reception in these islands. The Leader of the Opposition has recently discovered socialism.
I guess it is nice he is taking an interest in economics but, well, it would be better if he didn’t start in the fiction section.
Progress is a thousand business owners groping in the dark for a path forward and most of them becoming trapped in dead ends while a handful find a way forward. And lead the rest of us towards the light. State run systems that do not allow failure, such as government run schools and hospitals, never innovate, never advance, never improve.
The incomprehensible advance in AI that has become embedded into our culture, schools and offices isn’t a miracle. It is the inevitable result of the most powerful economic system for improving the lives of humanity......The full article is published HERE
Damien Grant is an Auckland business owner, a member of the Taxpayers’ Union and a regular opinion contributor for Stuff, writing from a libertarian perspective
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