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Carolyn Meinel's avatar

As always, you have done a great job of basing your opinions on facts.

I'm going to veer into the forecasting aspect of your analysis via two people who have often gotten things right under chaotic circumstances: Nobel prize winner Paul Krugman, and famed short seller Jim Chanos. Bottom line: the tech bros powering unprecedented infusions of capital into GenAI are likely about to get whacked hard and soon.

From behind the Krugman substack's paywall. interview with famed short seller Jim Chanos: Well, so I've been a bear on the data centers, the old data center companies, because now the new guys are building bigger and better and faster ones and the old ones are obsolete. But the problem is that it's not so much the data centers that depreciate, they do because of the air conditioning and all the guts of them. It's the chips that you're paying $50,000 a piece for that are being leapfrogged by the same company, And so the question is how fast are you depreciating and are we gonna get into the realm of accounting chicanery? How fast are you depreciating these hundreds of billions of dollars if you have to keep re-upping newer and more expensive chips? So, you know, that's where the rubber hits the road and the numbers are getting big enough, that in a couple of years, those are gonna be uncomfortable questions.

From Chanos in the free version of Krugman's substack: As Bethany McClean, the journalist who broke the story on fraud at Enron, pointed out, the key problem was that “fracked oil wells show a steep decline rate: The amount of oil they produce in the second year is drastically smaller than the amount produced in the first year” — a fact not reflected in their profit statements. (Chanos called it an “accounting scam.”) Chesapeake Energy, one of the leaders in the field, eventually filed for bankruptcy, but not before Aubrey McClendon, its swashbuckling former chief executive, had been forced out. As McClean noted, McClendon died in 2016... when his car slammed into a concrete bridge on Midwest Boulevard in Oklahoma City. He was speeding, wasn’t wearing a seatbelt and didn’t appear to make any effort to avoid the collision.

From Krugman in his Substack: So how does this relate to AI? Chanos pointed to the huge capital spending that big tech companies are now making on AI: The numbers are now getting so large from just even a couple years ago that the returns on invested capital are really now beginning to turn down pretty hard for these companies.

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