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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?
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.
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.
Target...?
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