The first cracks
The AI bubble is starting to show cracks. Meta stock was crushed today after among other things investors began to question its massive AI spending with little visibility of returns. Microsoft is receiving a similar if milder treatment.
Meanwhile Caterpillar stock has beat Nvidia year to date. It’s apparently on the receiving end of a lot of this AI spending … seems it takes a lot of “old economy” stuff like oil and steel to build that shiny new infotech infrastructure.
This isn’t about AI itself not being real or valuable. It’s about how extremely expensive it is. It’s just starting to sink in how much.
There are the notoriously prodigious power demands. Another cost not yet widely appreciated is rapid obsolescence. Check this out:
Nvidia’s new six-trillion transistor Vera Rubin ‘superchip’ for AI
You mean to tell me after I just spent billions on AI chips I’m going to have to do it all over again next year?
Then …
Nvidia makes a major push for quantum computing
And you might have to build your own nuclear power plant to run it all.
AI benefits have been fully priced in, but the costs are just beginning to be.
The amnesiac media could well have forgotten about this by tomorrow … the stock marketing machine isn’t about to suddenly give up on its latest cash cow. But as Jamie Dimon said about last week’s kerfuffle in the financial sector, if you see one cockroach, there’s probably more. Expect this to resurface …
Markets News, Oct. 30, 2025: Major Indexes Close Sharply Lower as Tech Stocks Slide; Meta, Microsoft Drop After Earnings
Gold has put in at least a temporary low below $4000 and has regained that mark, last trading around $4024.47. The downdraft from just below my $4400 ceiling is over. But is it off to the races again? I don’t think so, nor should gold investors be rooting for it. A hundred yard dash is over in a few seconds; a daily jog is sustainable.
Gold and silver to hit new highs in 2026, but the rally ends in 2027, says World Bank
So what is going to stop the dollar from its slide? The US will stop running multi-trillion-dollar deficits? The Fed will stop inflating? Are stocks and bonds going to be good investments again?
Mega’s Dispatch from England:- The Prince & (a) Pervert
Well it seems that after cutting down Prince Andrew last week the job was not done. It seems the Royal house has had an advanced copy of that book from the Woman whom sez Andy bedded her when she was 17.
This morning we learn that Prince Andrew…….is no more, the Royal formally know as Prince is just Mr now. The story going out is that having read the book the Royal house is “Shocked” by its content & Andy is a Prev.
No, that’s the cover story, the REAL Beef is he sold state secret’s to overseas powers. This hits home hard because his late Uncle whom was sacked off as King because of his love of Nazis & selling Nazi’s British defence plans at the start of WW2.
He also lost his favorite home, although he will be allowed to say on the Sandringham royal estate.
Oh My
Just NOT in time.
https://www.autoexpress.co.uk/news/368111/not-again-looming-semi-conductor-chip-shortage-may-halt-car-production
Well as of the 16:00 EDT close of weekly trading, a troy ounce of gold is back below $4000, just barely, and Nvidia’s market cap is back below $5,000,000,000,000, just barely. The ten year US Treasury yield is back above 4%. Much of what was lost by Meta, Microsoft, Nvidia was found by Amazon, on the strength of its cloud business, Amazon Web Services, limiting as a group Mag 7 losses over the last two trading days.
Stocks as an asset class (VT) gained about 0.22% on the week. Treasuries (GOVT) lost about 0.47%. Gold (IAU) was down -2.48%. On the year to date, stocks are up 19.92%, bonds up 3.25%, and gold up 50.21%.
Happy Halloween!
Has The AI Bubble Sprung A Leak?
“And you might have to build your own nuclear power plant to run it all.”
Trump trade adviser Navarro says administration may force data center builders like Meta to ‘internalize’ costs
“Several states and the White House signed a pact in January urging the nation’s largest grid operator, PJM Interconnection, to make big technology companies pay for new power plants on the system.”
Three Key Constraints That Could Derail The Data Center Buildout Story
When Will AI Be Both Powerful and Profitable?
“Hyperscalers report server depreciation lives of five to six years.4 Economically, AI hardware ages much faster. Nvidia now operates on an annual product cadence.5 Each generation of new chips delivers materially more compute per watt than the last. Older chips rarely fail physically. They become obsolete economically. The relevant test is not whether a GPU still runs, but whether it earns a return sufficient to cover depreciation, operating costs, and the cost of capital.”
“For valuation, this distinction matters. Free cash flow depends not on reported depreciation, but on the capital required to sustain competitive position. When economic depreciation exceeds accounting depreciation, much of the reported capex is more like an operating expense.”
“For investors, the question is not how much hyperscalers are spending, but what that spending earns. If frontier AI hardware generates most of its economic return within three years, then a large share of reported capex is maintenance, not expansion, and reported earnings may overstate economic profit.”
That last phrase is something I’ve been writing about for years. Companies that have little to no dividend yields often claim to be “reinvesting” their earnings. But whatever earnings reinvestment is required to simply maintain competitive position isn’t profit, it’s an ongoing business expense.
Earnings are when the company sends you a note telling you how much money your investment earned. Dividends are when they send you the money.