I get it that there is a massive AI craze sweeping the tech industry and that these are the shovels to the potential gold rush in which could induce a revenue waterfall.
There have been many promises and like the fate of many promises – they aren’t kept.
Personally, I have not been convinced yet that this AI revolution will turn into some transformative movement.
Then there is the issue of whether humans will just revolt against AI once they begin to understand we are essentially training software to replace human interaction.
Talking to software engineers, the avalanche of firings in Silicon Valley has woken up their cohort.
Coders thought for a long time they were immune from firings and the gift that kept giving would continue unabated.
Now, software engineers are being terminated at record levels, and management has decided to pour money into building AI data centers.
Even China is getting in on the act.
Alibaba (BABA) itself — which in February declared it was going all-in on AI — plans to invest more than 380 billion yuan ($52 billion) over the next three years. Server farms are springing up from India to Malaysia.
Critics have also pointed out the persistent dearth of practical, real-world applications for AI.
Alibaba is mounting a comeback in 2025 thanks in part to the recent popularity of its Qwen-based AI platform, which it envisions boosting Alibaba’s core commerce business as well as cloud services.
American tech companies have already spent close to half a trillion dollars on AI data centers and there hasn’t been much revenue follow-through parallel to it.
Co-founder of Alibaba Joseph C. Tsai has said that American companies are overspending on AI data centers and less money can be spent than what is necessary to get the same result.
He said, “I’m still astounded by the type of numbers that are being thrown around in the United States about investing into AI.”
The latest news comes from Microsoft (MSFT).
They have quit new data center projects in the US and Europe that had been set to consume 2 gigawatts of electricity.
Microsoft’s retrenchment in the last six months included lease cancellations and deferrals.
Microsoft has said it will spend about $80 billion building out AI data centers this year, and that the pace of growth should begin to slow after that.
If investors don’t see anything meaningful in revenue possibilities soon, people will start to think this is beginning to feel like the Chinese ghost city problem.
China is usually not the type to overspend, and watching their development of AI for a fraction of the price is fascinating.
What does this all mean?
After a brutal correction in tech stocks in February, it could mean another leg down for tech stocks.
If it proves to be true in the short-term, tech stocks won’t deserve the premium they are fetching if they are in fact overspending on AI data centers.
Then throw into the blender that the government is fighting about trade, and there is a severe limit on what we can do in the short-term.
