The Scramble For Cash In AI Is A Huge Red Flag
Inside Today’s Issue
Essay: Why The AI Bubble Is In Its Most Dangerous Place
EU Quietly Moves On Bonds
Cutting Capital Gains
Buy Groceries Now, Maybe Pay Later
Chart Of The Day… ExxonMobil (XOM)
Reader Poll… Consumer Price Index
Today’s Mailbag
Editor’s note: Today, Porter shares the second essay in a multi-part series on the staggering amount of capital flowing into the build-out of artificial intelligence – and what might happen next.
Yesterday we described how Nvidia’s (NVDA) massive $40 billion-plus investments, vendor financing, and lease guarantees are creating much of its revenue and profits in a circular ecosystem that resembles a Ponzi scheme. I wrote:
Nvidia’s market cap is $5.25 trillion. Its most recent quarterly free cash flow was roughly $49 billion. Companies that generate $49 billion of quarterly cash do not need a $500 billion financing package – unless something is very wrong.
Something is very wrong: This is Nvidia’s second capital raise in eight weeks.
Today we continue our cautionary tale.
Vendor financing is especially dangerous when, like with GE Capital circa 2008, there’s tremendous concentration. When an entire industry is funded by only a handful of equipment vendors, there’s almost always a financial blow-up at the top of the cycle.
In the telecom bubble, McKinsey & Co. put the combined telecom-equipment vendor financing at year-end 2000 at $25.6 billion across only nine suppliers.
But AI is even more concentrated.
