What caught my eye this week.
I am definitely not saying that the massive megacap tech deals of the past fortnight will for sure end badly. Let alone that such deals must mark the top of this bull market.
Credit with me some learning!
After more than two decades of meddling in the markets – and nearly as long making public pronouncements on this blog and elsewhere – it’d be a sackable offence for me not to have learned a bit of humility along the way.
Markets can remain irrational longer than you can believe what you’re reading on social media, as Keynes almost said.
Markets also have a way of turning today’s ‘irrationality’ into tomorrow’s ‘crucial staging point that any fool could have identified’ if you wait long enough for the proper perspective.
So yes, Nvidia investing $100bn in its major client OpenAI – or Oracle leveraging up to build out the data centre capacity required to fulfil the staggering $300bn compute deal it signed with OpenAI last week, which in turn inflated Oracle’s share price – may not be as Ponzi-ish as they look.
But these mind-bendingly big deals at the very least represent a gear shift.
Hitherto the hyperscalers (Meta, Google, Amazon et al) were just reinvesting their vast torrents of cashflow into building more data centres for paying customers. It was business as usual, albeit on steroids.
However this new phase is more self-referential. Something akin to a tech oligarch blood pact, where they are going all-in on the AI revolution and they’ll sink or swim together.
What’s My Age Again?
Sadly, I’m too old not to remember the Dotcom boom and bust at a time like this.
Not just in terms of the high valuations. (I’m thinking here of the likes of Palantir and OpenAI rather than the Magnificent Seven tech giants, most of which still don’t seem truly crazily-priced given their sales growth and margins.)
No, also in the way that Dotcom-era start-ups floated on an ocean of ultimately VC-funded advertising that paid the bills of a bunch of other start-ups, which ultimately took half of them down when somebody thought to ask “how many people are actually clicking on these things?” and pulled the plug when they got a straight answer.
I mean, doesn’t nVidia investing in OpenAI so that OpenAI can get chips from nVidia have the whiff of that to you?
Even so, you might imagine that none of this matters for your portfolio. But what if I quoted JP Morgan informing us this week that:
AI related stocks have accounted for 75% of S&P 500 returns, 80% of earnings growth, and 90% of capital spending growth since ChatGPT launched in November 2022.
This also seems like a pertinent point to remind you that US equities account for 60-70% or more of global tracker funds.
Artificial Intelligence taking all the jobs or becoming super-intelligent is one thing.
But this AI boom being exposed as productivity-sapping margin-crushing hype on a nation-state-GDP level would also cause us investors plenty of pain.
Wild Wild West
Accordingly, I’ve been worried and underweight the US at least 18 months. And boy hasn’t it made keeping within spitting distance of the global market’s return difficult.
Because once more with feeling:
AI related stocks have accounted for 75% of S&P 500 returns, 80% of earnings growth, and 90% of capital spending growth since ChatGPT launched in November 2022.
On the other hand, Wall Street’s obsession with big tech and AI has left lots of other stuff looking good value, especially outside of the US. And it’s fun to hunt around for it.
The activist manager Saba, for example, is awaiting approval for a new ETF it’s launching that will enable value-minded investors to buy a basket of UK investment trusts – specifically because so many of them are still going cheap.
Again, the parallels are obvious.
Nobody wanted to own Warren Buffett’s Berkshire Hathaway at the peak of the Dotcom Bubble. Then in the years after the bubble bust, value soared.
The set-up looks so easy, right? Yeah, too easy. We could be in 1996, say, not 1999. More importantly we’re actually in 2025, and stock market history rhymes rather than repeats.
So all I’m saying for sure is that if this is a bubble and if it does burst, then you’ll hear a lot about nVidia putting $100bn into OpenAI in every future account of it.
No Scrubs
Oh, and incidentally people keep saying the hyperscalers are spending tens of billions ‘building out the AI infrastructure’ as if they were laying down concrete.
But anyone who has ever bought a new nVidia graphics card to play the latest PC games will have found themselves confronted with jerky frame rates six months later.
These things go stale faster than you can say “whatever happened to the Metaverse?”
So if they are building out the AI infrastructure, they’re going to have to build it out again…
Have a great weekend.
From Monevator
Crypto ETNS: what you need to know – Monevator
Last chance to buy some Monevator T-shirts before we rationalise our shop – Monevator
From the archive-ator: Patient investing requires a little faith – Monevator
News
New digital ID scheme to be rolled out across UK – GOV.UK
Retail sales slump for twelfth month in a row – This Is Money
UK forecast to have highest inflation rate among the rich nations – BBC
Record number of savers and investors facing a tax bill… – Which
…while half of the population live in households that get more in benefits than they pay in tax – T.I.M.
Trump’s $100,000 H-1B fee sparks a global race for top talent – CNBC
Reeves urged to take 2p off employee NI and add it to income tax in Budget – Guardian
£2,000 savings buffer can be the turning point for financial wellbeing – Yahoo Finance
HSBC demonstrates first-known quantum algorithmic trading with IBM – HSBC
Wealthy investors from US, China, and Hong Kong apply for New Zealand’s ‘golden visa’ scheme – Guardian
Momentum is crushing value this year. Again. – Sherwood
Products and services
Is Santander’s new Edge Explorer bank account worth it? – Which
IKEA Family credit card review – Be Clever With Your Cash
Nationwide trims mortgage rates despite BoE hold – This Is Money
Get up to £1,500 cashback when you transfer your cash and/or investments to Charles Stanley Direct through this affiliate link. Terms apply – Charles Stanley
How to avoid falling victim to a ‘money mule’ scam – Guardian
Barclays cuts mortgage rates for home buyers with smaller deposits – This Is Money
Get up to £200 cashback when you open or switch to an Interactive Investor SIPP. Terms and fees apply, affiliate link. – Interactive Investor
How does home equity release work? – This Is Money
Supermarket Christmas delivery slots – Be Clever With Your Cash
Homes to rent for up to £1,800… in pictures – Guardian
Comment and opinion
How can we solve the 60% tax trap without damaging the economy? – This Is Money
Why the 5% Rule is the new 4% rule… – Of Dollars and Data
…although US retirees actually tend to follow a 2% rule – A Wealth of Common Sense
How to minimise active ETF bid/ask spreads [US but relevant] – Morningstar
If sustained growth is the aim, the UK must alleviate child poverty – Observer
Welcome to London, divorce capital of the world [Paywall] – FT
How you can profit from the coming devaluation – Simple Living in Somerset
Millions of Americans are becoming economically invisible – Bloomberg via AP
Debunking the active fund ‘persistence scorecard’ debunking – FT
Naughty corner: Active antics
Exploring capital efficiency [PDF, nerdy] – AQR
What activist managers buy in Japan – Verdad
Nope, sorry, the S&P 500 is not the new risk-free rate – FT
How pensions windfall could turbocharge UK stock market [Affiliate link] – II
The perils of concentration – Market Sentiment
American Express: an empire of plastic – Quartr
Kindle book bargains
Flash Boys by Michael Lewis – £0.99 on Kindle
Alchemy by Rory Sutherland – £0.99 on Kindle
The Green Budget Guide by Nancy Birtwhistle – £0.99 on Kindle
Techno Feudalism by Yanis Varoufakis – £0.99 on Kindle
Or pick up one of the all-time investing greats – Monevator shop
Environmental factors
China has finally pledged to cut carbon emissions – Sherwood
Demand for oil will not peak until 2030, warns BP – This Is Money
New homes may be forced to fit water-saving toilets and showers – Sky
The near-extinction of rhinos is at risk of being normalised – The Conversation
Ocean acidity crosses critical threshold for marine life – Guardian
Robot overlord roundup
The data centre blob [PDF] – JP Morgan
Chatbait is taking over the Internet – The Atlantic [h/t Abnormal Returns]
The algorithm will see you now – Works in Progress
If Anyone Builds It, Everyone Dies review – Guardian
AI generated workslop is here… – CNBC
…and it’s destroying workplace productivity – Harvard Business Review
American companies talk about AI, but can’t explain the upsides [Paywall] – FT
Not at the dinner table
The moral case against Nigel Farage – The Newsletter of (Not Quite) Everything
From low taxes to economic fragility – Klement on Investing
A left-wing version of Trump isn’t the answer – The Argument
Why is Trump bailing out Argentina? – Paul Krugman
Sometimes democracy works: on same-sex marriages – Aeon
Letter from an ICE detention facility – Bitter Southerner
Trump’s move against the media is an authoritarian classic – A.P.
Who’s getting rich off your attention? – Kyla Scanlon
Things are really bad folks – Freddie deBoer
Off our beat
Why Putin can’t afford to let Ukraine prosper – WSJ
National Railway Museum reopens after £11m refit – Guardian
25 interesting ideas from 2025 – Derek Thompson
The king of coffee nerds – Financial Times [h/t Abnormal Returns]
Is the Golden Age of TV officially over? – Stat Significant
Perspective on life, money, and success from rock star Billy Corgan [Video] – via X
Scammed into scamming – Reuters
Mid-20th Century culture is getting erased – The Honest Broker
Why every country needs to master the electric tech stack – Noahpinion
‘Very mean’ squirrel has sent two people to ER in Californian city – Associated Press
And finally…
“Greed is good because it makes things predictable. No need to coerce or enforce or foist any delusions when you have people volunteering to do the labor of self-persuasion.”
– Carrie Sun, Private Equity: A Memoir
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“…while half of the population live in households that get more in benefits than they pay in tax”
If you choose – misleadingly, in my view – t0 categorise the State Retirement Pension as a “benefit” that result seems almost inevitable. But if you used a better definition, is it still true?
Yes, with the US market dominated by a very few big companies all at high PEs and all operating in roughly the same space (or at least whose fortunes are somewhat tied to “tech”) and that US market dominating global trackers it’s very hard to feel enthusiastic or even indifferent to just adding to your global trackers holding every month no matter how much of a passive investor I want to credit myself as being (and hard to feel enthusiastic about the US anyway with His Donaldness running the show). So much so I do wonder if I should be looking at putting 50% into a global tracker and the other 50% into “other” (world ex US tracker or Europe / UK / Asia trackers as suits your prejudice).
Not the first person to wonder / worry about this of course (may even be the last person to actually start to think about doing something about it!).