The Fed's Fairy Dust and Big Tech's Reality Check: Pick Your Poison
Alright, folks, another Monday, another dose of market madness. You gotta love it. One minute, the sky is falling, the next, some suit from the Federal Reserve whispers sweet nothings about a rate cut, and suddenly, everyone's popping champagne like it's 1999. Christopher Waller, some Fed Governor I'm supposed to care about, pipes up, talks about a December rate cut because, get this, the labor market's a bit wobbly. And just like that, microsoft stock price nudges up, along with all its tech buddies. Higher by a measly 0.40%? Give me a break. This ain't a rally; it's a sneeze.
Waller's out here saying he's not worried about inflation reaccelerating. Tariffs? Pfft, no biggie, he reckons. He calls a quarter-point move "risk management" for us struggling lower- and middle-income consumers. Bless his heart, right? Like a tiny band-aid on a gaping wound, that'll fix everything. This whole "easier monetary policy" song and dance makes long-term growth stocks, like our beloved Big Tech, look all shiny again. Investors just rotate back into large-cap tech. It's like watching a flock of pigeons chase after the same stale breadcrumbs, ain't it? They expect us to believe this nonsense, and honestly... it's just so predictable. The Fed moves a pinky, and the market acts like it's found the Holy Grail.
The AI Gold Rush: More Fool's Gold Than Glitter?
But then, just as the rate cut fever starts to break, someone finally decides to inject a dose of actual reality into the room. Enter Alex Haissl from Rothschild & Co Redburn. This guy's got the guts to downgrade Amazon stock and Microsoft stock, right when everyone else is still busy polishing their AI trophies. He's saying what a lot of us cynics have been muttering under our breath: the market's valuing these tech giants' AI spending as if we're still in the "cloud 1.0" era. You know, back when cloud services were cheap to run and profits practically printed themselves.
Haissl, god bless him, is calling bull. He's got the numbers, and they tell a different story. Generative AI? It's not just more expensive; it's way more expensive. We're talking $40 billion in capital expenditure per gigawatt of power for a GPU. And the revenue it generates? A measly $10 billion per gigawatt. That's a hell of a spread, isn't it? So, while Nvidia stock and AMD stock might be flying high on chip demand, the guys actually using those chips are bleeding money. It's like buying a ridiculously expensive, gas-guzzling supercar that can only drive five miles an hour. What's the point?
The Short Shelf Life of Hype
And it gets worse. These fancy AI chips? They've got a shelf life shorter than a carton of milk. Three years, maybe, before they're obsolete. Haissl says if you're replacing GPUs every three years, these projects become "value destructive." That's a fancy way of saying you're just lighting money on fire. So all those billions that apple stock, google stock, and meta stock are pouring into AI infrastructure—a cool $349 billion this year across the "Magnificent Seven"—might just be evaporating faster than a puddle in the desert.
Plus, these hyperscalers? They don't have the pricing power they used to. The hardware is coming from startups, and if you try to pass those costs down, those startups just go broke, or the hyperscalers' own economics take a hit. It's a lose-lose. Haissl isn't saying it's a full-blown bear case, but it sure ain't a bull case either. He wants to see high growth and a "meaningful reduction in capex" before he gets optimistic. I mean, good luck with that. It's like asking a shark to become a vegan.
We've seen amazon stock price drop 13% from its November peak, and microsoft stock price is down 10% from its late October high. The tech-heavy Nasdaq 100 is off 6% from its own peak. Even the Roundhill Magnificent Seven ETF is down 7%. This ain't just a blip; it's the market starting to sober up. Maybe the party's over, or at least, the really cheap booze is gone. I'm just sitting here, watching my tesla stock and bitcoin price doing their own thing, wondering when the grown-ups are gonna realize this whole AI revolution has a serious price tag... and it might not be worth it. Then again, maybe I'm just the crazy one here.