Eating

Years ago some pundit (Marc Andreesen), remarked that software will eat the world. Boy, has he ever been shown to be an idiot. AI is 99.44% hardware, and the rest is 100+ year old stats. Now we get the dire skinny from Jeff Sommer:

These big companies are able to categorize the money as an investment — a capital expenditure — and not as an expense. So under current accounting rules, the bulk of the spending has not yet counted against their gaudy earnings. That is helping to propel the stock market to new heights under rosy assumptions that A.I. will transform the world, and that the companies behind it will be making money.

Just like man's laws, accounting rules are also manmade. Unlike, for example, the laws of thermodynamics. Even the laws of economics are manmade, not natural. So, what does it all mean, Mr. Natural?

One day earlier, IBM's shares lost 25.2 percent. That was its steepest daily decline since the 1960s, and it was set off by an earnings shortfall that its chief executive attributed, in part, to the spending underway on A.I. data centers. "We did not anticipate the magnitude of the capex reprioritization," Arvind Krishna, the company's chief executive, wrote in a letter to investors. Other companies spent so much money to build A.I. foundations, he said, that there wasn't as much left as expected for software service companies like IBM.
[my emphasis]

It's stll not clear to me, anyway, how AI's TAM can amount to anything more than labour replacement. If that really does decimate employment, who'll have moolah to buy all those Bongo Bits? Or, will 'modern economies' devolve into a 'modern dark ages' with only the oligarches having need of the only 'product' made by this modern economy: fancy financial services? With the amount of billions of Bongo Bucks going into each entity's 'data centres', is there enough labour in the world to satisfy the bond holders? Much less show a tidy profit?

There are already rumblings in the high yield market surrounding concerns that the explosion in issuance has bubble-like characteristics similar to that of telecoms in the early 2000s or energy in 2015 to 2017, when investor enthusiasm outweighed a sober assessment of risk. These same critics also worry about the potential for overbuild or overcapacity, i.e. the massive demand fails to materialise, or that despite the strong tenant base, these contracts have yet to be tested.

When it's the Damn Gummint, the 'bond vigilantes' come to the rescue, or corpse feeding. We'll see how they do with such, mostly, private paper.