Big tech meets Milton Friedman
Big Tech is working its way through all four stages of a money-spending matrix legendary economist Milton Friedman outlined.
Milton Friedman, a renowned economist, outlined a framework for allocating resources. He suggested that spending your own money is the most disciplined approach, as you're directly accountable for the expenditure. This aligns costs with your values, fostering efficiency. Conversely, spending someone else's money on yourself can lead to inefficiency, as the cost discipline remains but the value signal is lost. In extreme cases, this can result in financial crises, as seen with subprime mortgages.
Big Tech is progressing through these stages, following Friedman's progression. Initially, tech giants invested their profits in internal infrastructure like chips and data centers. Next, they sought external capital from sources like Intel's $15 billion stock offering, followed by Alphabet, Meta, Oracle, and Amazon. This capital is now being directed towards AI development.
Nvidia, for instance, has assembled a $500 billion fund from Wall Street firms to back OpenAI's lease of a SoftBank data center in Ohio and to facilitate chip rentals to startups via CoreWeave. Similarly, Broadcom is using Blackstone's money to assist Anthropic in buying chips. Google is utilizing bondholders' money to aid Fluidstack in procuring compute from TeraWulf.
In essence, big tech companies are leveraging various capital sources to invest in AI, not just their own profits. This trend underscores the importance of disciplined spending, as per Friedman's economic principles.
Written by urgent.news from Semafor's reporting — not their text. Machine-written — may contain errors; check the original before relying on it.
