Hyperscalers won't stop spending until shareholders make them
Hyperscalers are spending themselves into oblivion, spreading inflation well beyond Silicon Valley and obscuring problems nearly everywhere else.
The early 2010s bull market was deemed the most hated rally in history. Investors underestimated the Federal Reserve's power and determination to prop up a struggling economy. Corporate earnings slumped, European debt issues rose, and governments overspent, all fueled by an influx of free money. Today, hyperscalers are spending themselves into financial ruin, spreading inflation beyond Silicon Valley and masking problems in other sectors.
The S&P 500 reached another record high yesterday, even as oil prices remain stuck in the Gulf and Europe faces another debt crisis. The rally is primarily driven by a few AI companies. Some of these companies have the earnings to support the surge, with Goldman Sachs projecting Nvidia and Micron to contribute a third of the S&P 500's earnings growth in the current quarter.
However, the return on their investments remains uncertain and far from imminent. Alan Greenspan's assertion that the Federal Reserve cannot deflate a bubble without destabilizing the economy holds true in the AI era. Tech giants like Mark Zuckerberg and Satya Nadella are not frugal consumers who can be curbed by higher interest rates.
Instead, they are self-appointed leaders in an existential race and will continue spending until their shareholders compel them to stop. The market has become reliant on a single engine: the AI boom, while everything else is deteriorating.
Written by urgent.news from Semafor's reporting — not their text. Machine-written — may contain errors; check the original before relying on it.
