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Software giant Oracle corporation is laying off thousands of workers and killing their Texas data center plans, per Reuters and Bloomberg. It appears that their capital expenditures have gotten ahead of their ability to pay for them and now they face the regrettable need to say it out loud shortly before markets close on a Friday afternoon.
This may be indirectly tied to the Iran conflict as Mid East sovereign wealth funds have begun pulling back from investment.
I'm interested to see the fallout of this one. My understanding is that the Ellison clan is fairly tight with the Trump admin.
Beyond that, I have concerns that this may be the match that lit the fuse on AI spending. I have spent the last six months trying to figure out why these valuations made any sense whatsoever. The expense profile of companies like Anthropic and OpenAI looked a lot more like Caterpillar to me than Salesforce. When it came to Oracle, I couldn't make sense of it at all.
In terms of explanations, I only had three explanations I had were that I was:
I still don't know which one it is.
Some of you here are clearly smarter and more educated than me. What do you think I'm missing here? My gut prediction is that this spirals into an even bigger flight from capital in the next six months, which causes holy hell on the retail market because the average investor is more leveraged now than they have been at any point in my lifetime. I'm also assuming it'll kill quite a lot of "LLM Wrapper" companies, like the one run by fear porn expert Matt Shumer.
I assume Google will be OK.
Beyond that, I don't have any idea.
Any predictions?
What do you mean by the expense profile? Some quick Googling, maybe inaccurate, shows these annual operating expenses for 2025:
Caterpillar - about $56 billion
Salesforce - about $31 billion
OpenAI - about $28 billion
Are referring to OpenAI's plans for massively increased expenditures in the future?
I am.
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I was going to make my usual argument about AI being used for target acquisition in Iran, new mathematical proofs, finding zero-day exploits in Firefox, general-purpose robots, just about everything...
But nobody's going to be persuaded by that who hasn't already been persuaded at this point.
What happens without the 'AI bubble'? In the minds of the finance class, it means that the big tech companies go back to share buybacks. They conducted hundreds of billions in buybacks 2015-2022 and have since largely stopped to fund their investment in AI. Enormous amounts of money are being diverted from asset managers and financial elites to producers of HBM, to advanced packaging, to Nvidia, to power plants, construction workers, AI researchers... That's what they're unhappy about.
This is what definancialization looks like. It's anathema to a certain short-termist mindset that has predominated since the 1980s, a shareholder-first capitalism that has resulted in a hollowing out of productive industry. The beancounters preferred to offshore, to cut R&D, to cut investment, to cut costs.
There's a conflict between financial capitalism and productive capitalism and productive capitalism is taking back the reins. The beancounters are discovering that they're no longer in charge and are spreading fear and doubt to try and get the tech companies to change course. The tech companies know a bit more about technology than the beancounters and are fully committed to competition and investment.
And so we get these headlines:
They're just moving their plans around. The other article:
They're spending more money and investors are upset ('it should've been me getting that money, not people working in the real world!') Oracle is a relatively small company but they used to do enormous buybacks, $150 billion 2015-2022. Now they stopped, now they're issuing shares and borrowing money to invest. Investors don't like that at all. Thus we get this bizarre discourse about how supposedly all these companies are selling API access at a loss when open-source models are very cheap and suggest huge profits on inference. Then there's all this talk about how R&D costs should be classified - beancounter talk. The people who actually know the real numbers in Google, Microsoft, Amazon have clearly made their decision to spend big, why should we second-guess them based on vibes?
One thing which might happen, which would be hilarious, is that OpenAI is slightly too early but Anthropic is just right. That is, AGI is going to take just slightly longer than expected and OpenAI implodes from overinvestment while Anthropic rides to the moon.
I'm a lot more optimistic about Anthropic's business plan than OpenAI's. They recognized that getting their hooks into enterprise users from the get go is a better strategy than having hundreds of millions of users who don't pay.
Same, and I'm also more optimistic about Claude than ChatGPT. Alignment and safety did turn into effectively usable capabilities.
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I think we're in an AI and tech in general bubble (Cory Doctrow has a good piece explaining why tech is overvalued: only the promise of growth keeps tech P/E above other industries, and eventually this has to settle down). As far as the broader market goes, I'm not sure. I'm up 12% this year on a strong group of rail/industrial/shipping and biotech stocks, but I don't know enough about the broader economy to really say if my picks are representative.
I think this may be the beginning of a long NVIDIA/AI route, but I have no idea if that will ripple to the rest of the economy. Iran and oil seem to be more dominant IMO.
While reversed stupidity isn't intelligence, Doctorow is up there with Jim Cramer when it comes to counterpredictions and bad or misunderstood models. He's not saying things because they're true, or because he believes they're true, or even that he's really capable of 'belief' in any externally validated way. He's saying them because he thinks they'll persuade his readers, and you should take that as the insult it's intended as.
Again, that doesn't mean that he's wrong. Indeed, he's particularly frustrating even when I agree with him! But you'll notice none of the evidence he brings actually supports his argument, and often isn't even evidence.
If you actually have a link to a specific one, I'll either quite happy point out specific parts to the pattern or eat crow. But if you notice it, you'll notice he can't stop doing it.
((which makes the recent 'ai transcripts as "like masturbating in front of a stranger"' , yes that's a direct quote, a little interesting in a way he didn't intend, and doubly stupid in the way he did.))
Well he's certainly right about this one. I'll see if I can find the specific piece, but there's no magic that justifies a higher P/E ratio for tech companies vs. say target or Union Pacific Rail other than promises of growth. At some point NVIDIA, GOOGL and AMZN have to trade at the same P/E range as the rest of the S&P. The only thing that justifies a higher ratio is a promise of above market growth, which will eventually stop at some point. I think we are currently at that point.
Also risk, it's actually more risk than growth
Margins too, kind of, but that's mostly just "risk with extra steps"
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Do the tech companies even really have that high of a P/E ratio anymore? Microsoft's doesn't really stand out. Amazon's seems a little high, but not absurdly so.
Google has a P/E of 27, AMZN 29, MSFT 25, NVDA: 36 Target: 15.
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I wonder what that's going to look like in a week. It seems like something should happen.
It's weird man because the war increases rates (good for shipping) but also increases risk for losses (bad for shipping). If the war continues long-term there will be less shipping volume total. The US backstop of oil shipping is another wildcard that I don't know how to interpret.
There's a lot of shipping that isn't oil shipping, and a lot of oil shipping that doesn't go through Hormuz; the biggest impact on shipping as a whole is probably fuel costs.
The fact that Europe is now almost entirely at the mercy of the US for it's natural gas seems conspicuous.
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I'm going all in on nothing. The market overall continues posting at worst anemic returns as it has for the past few months, but no crash. And yes, I am long the market.
People often forget that the price of assets is tied not to some absolute and abstract sense of value but to the relative standing of everything vis a vis everything else, including money.
The market won't crash just because things go poorly, for it to crash there has to be an imbalance where something becomes a better place to store nominal value than (tech) stocks.
The Chinese chose housing as the store of value. But then you end up with a different set of incentives resulting in people putting their savings into multiple housing units that won't necessarily be used for any actual housing. Which I'm not even going to criticize since that's not any more silly than storing value in pieces of shiny metal. If they came to the conclusion that an apartment is worth a certain value, I don't second guess that despite the lack of obvious housing utility.
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