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 [1] 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 [2] $100bn in its major client OpenAI – or Oracle leveraging up [3] 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 [4]. 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 [5] 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 [6] 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 [7].
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 [8] 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 [9] 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 [10].
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 [11]
Last chance to buy some Monevator T-shirts before we rationalise our shop – Monevator [12]
From the archive-ator: Patient investing requires a little faith – Monevator [13]
News
New digital ID scheme to be rolled out across UK – GOV.UK [14]
Retail sales slump for twelfth month in a row – This Is Money [15]
UK forecast to have highest inflation rate among the rich nations – BBC [16]
Record number of savers and investors facing a tax bill… – Which [17]
…while half of the population live in households that get more in benefits than they pay in tax – T.I.M. [18]
Trump’s $100,000 H-1B fee sparks a global race for top talent – CNBC [19]
Reeves urged to take 2p off employee NI and add it to income tax in Budget – Guardian [20]
£2,000 savings buffer can be the turning point for financial wellbeing – Yahoo Finance [21]
HSBC demonstrates first-known quantum algorithmic trading with IBM – HSBC [22]
Wealthy investors from US, China, and Hong Kong apply for New Zealand’s ‘golden visa’ scheme – Guardian [23]
[24]
Momentum is crushing value this year. Again. – Sherwood [25]
Products and services
Is Santander’s new Edge Explorer bank account worth it? – Which [26]
IKEA Family credit card review – Be Clever With Your Cash [27]
Nationwide trims mortgage rates despite BoE hold – This Is Money [28]
Get up to £1,500 cashback when you transfer your cash and/or investments to Charles Stanley Direct through this affiliate link [29]. Terms apply – Charles Stanley [29]
How to avoid falling victim to a ‘money mule’ scam – Guardian [30]
Barclays cuts mortgage rates for home buyers with smaller deposits – This Is Money [31]
Get up to £200 cashback when you open or switch to an Interactive Investor [32] SIPP. Terms and fees apply, affiliate link. – Interactive Investor [32]
How does home equity release work? – This Is Money [33]
Supermarket Christmas delivery slots – Be Clever With Your Cash [34]
Homes to rent for up to £1,800… in pictures – Guardian [35]
Comment and opinion
How can we solve the 60% tax trap without damaging the economy? – This Is Money [36]
Why the 5% Rule is the new 4% rule… – Of Dollars and Data [37]
…although US retirees actually tend to follow a 2% rule – A Wealth of Common Sense [38]
How to minimise active ETF bid/ask spreads [US but relevant] – Morningstar [39]
If sustained growth is the aim, the UK must alleviate child poverty – Observer [40]
Welcome to London, divorce capital of the world [Paywall] – FT [41]
How you can profit from the coming devaluation – Simple Living in Somerset [42]
Millions of Americans are becoming economically invisible – Bloomberg via AP [43]
Debunking the active fund ‘persistence scorecard’ debunking – FT [44]
Naughty corner: Active antics
Exploring capital efficiency [PDF, nerdy] – AQR [45]
What activist managers buy in Japan – Verdad [46]
Nope, sorry, the S&P 500 is not the new risk-free rate – FT [47]
How pensions windfall could turbocharge UK stock market [Affiliate link] – II [48]
The perils of concentration – Market Sentiment [49]
American Express: an empire of plastic – Quartr [50]
Kindle book bargains
Flash Boys by Michael Lewis – £0.99 on Kindle [51]
Alchemy by Rory Sutherland – £0.99 on Kindle [52]
The Green Budget Guide by Nancy Birtwhistle – £0.99 on Kindle [53]
Techno Feudalism by Yanis Varoufakis – £0.99 on Kindle [54]
Or pick up one of the all-time investing greats – Monevator shop [12]
Environmental factors
China has finally pledged to cut carbon emissions – Sherwood [55]
Demand for oil will not peak until 2030, warns BP – This Is Money [56]
New homes may be forced to fit water-saving toilets and showers – Sky [57]
The near-extinction of rhinos is at risk of being normalised – The Conversation [58]
Ocean acidity crosses critical threshold for marine life – Guardian [59]
Robot overlord roundup
The data centre blob [PDF] – JP Morgan [6]
Chatbait is taking over the Internet – The Atlantic [60] [h/t Abnormal Returns [61]]
The algorithm will see you now – Works in Progress [62]
If Anyone Builds It, Everyone Dies [63] review – Guardian [64]
AI generated workslop is here… – CNBC [65]
…and it’s destroying workplace productivity – Harvard Business Review [66]
American companies talk about AI, but can’t explain the upsides [Paywall] – FT [67]
Not at the dinner table
The moral case against Nigel Farage – The Newsletter of (Not Quite) Everything [68]
From low taxes to economic fragility – Klement on Investing [69]
A left-wing version of Trump isn’t the answer – The Argument [70]
Why is Trump bailing out Argentina? – Paul Krugman [71]
Sometimes democracy works: on same-sex marriages – Aeon [72]
Letter from an ICE detention facility – Bitter Southerner [73]
Trump’s move against the media is an authoritarian classic – A.P. [74]
Who’s getting rich off your attention? – Kyla Scanlon [75]
Things are really bad folks – Freddie deBoer [76]
Off our beat
[77]
Why Putin can’t afford to let Ukraine prosper – WSJ [78]
National Railway Museum reopens after £11m refit – Guardian [79]
25 interesting ideas from 2025 – Derek Thompson [80]
The king of coffee nerds – Financial Times [81] [h/t Abnormal Returns [61]]
Is the Golden Age of TV officially over? – Stat Significant [82]
Perspective on life, money, and success from rock star Billy Corgan [Video] – via X [83]
Scammed into scamming – Reuters [84]
Mid-20th Century culture is getting erased – The Honest Broker [85]
Why every country needs to master the electric tech stack – Noahpinion [86]
‘Very mean’ squirrel has sent two people to ER in Californian city – Associated Press [87]
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 [88]
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