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Posted on 08/13/2026 7:42:35 PM PDT by yesthatjallen
Unprecedented moves in the AI space this week are giving stock market experts flashbacks to one of the most famous corporate scandals in history, stoking fears that we're in line for a similarly catastrophic fallout.
The headline-worthy $500 billion that Wall Street just announced it's providing Nvidia clients to scale their AI infrastructure marks the beginning of an untested new future for financial engineering that commentators such as Ed Yardeni and Michael Burry are extremely wary of. And, based on the implications for the average portfolio and the economy at large, you may need to be wary, too.
Predicting a fall
Burry, famous for calling the subprime mortgage crisis before it happened, drew comparisons between the mind-blowing recent investment to the 2001 fall of Enron, the energy corporation that went from trading $2.5 billion in commodities a day to filing for bankruptcy (with some unsavory accounting gymnastics to obscure its failures in between).
SNIP
(Excerpt) Read more at finance.yahoo.com ...
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“the fear and wishful demise of AI is unfortunate” - Chinese Fortune Cookie
He has called 14 of the last 1 busts.
I just don’t see AI solving all that many problems.
Hell, it can’t even spell check my txt before I send it.....
I have mentioned to some that I spent part of two weeks assembling rough economics on AI after listeining to an Epoch Times podcast hosing a very savvy silly cone valley venture capitalist. The man suggested there is no there, there about mid-spring.
I found that it is unlikely, using the best forecasts of AI, that it will make a profit for the initial investor on a full-cycle basis. Those who pick up the pieces after the shake-out could make money on a money forward basis with deep discounted assets bought in fire sales.
For the model I used what I could find about business plans and forecasts of funds flow, OPEX, delays in start-up, ramp up of revenue and so forth. I expected a bunch of SEC compliant business plans and forecasts for such a massive investment. I didn’t find much.
Tonight a friend and I were talking about AI and he asked how they plan to make money. Selling different kinds of subscriptions I said but other than that I’m not sure how much and when but I suppose there have been some sales. I also mentioned an article in Forbes I think that said companies were finding AI more expensive then the people they let go. Huh.
On a lark, after the conversaion I asked good old Google how AI planned to make money and how much. Subscriptions mostly but vague about how much and when the money would come in.
Then I asked what the expected NPV and RoR would be. I”m still not sure about what the response was. Something about the need to compartmentalize the answer. Data centers might not actually make any money but the software could.
Continuing, I asked how much a Data Center would cost to build, own, operate, maintain, update, power and such and how much revenue it expected to make. Cost, $7 to $10 billion a year amortizing a 3 to 5 year life for the hardware and the initial investment. That struck me as really strange since the 1GW Data Center cost about $80 billion to build. Next, Revenue, maybe $10 Billion a year and by the way, a four year power up delay. That doesn’t float folks.
I did major project economics in the oil and gas business for many years. I modeled every risk I could think of, carried a cart full of cases to the board room to answer a barrage of questions. The point is, I’ve done economics a time or two for some very large projects. The NPV and RoR are all in how fast you spend and how fast you get the money back. Not once did we ever compartmentalize the investment to find a part of it that had good economics. Not one of the sources cited in the Google AI reply ever gave a straight answer to the question, what is the NPV and RoR range for these projects?
Next, a Data Center in space would cost a lot more than one on earth wouldn’t it?
Dreaming big is lots of fun with OPM.
I told a friend this evening that some may thank Abbot for his pause in Data Center construction in Texas.
* Bank-monetary lockdown “Holiday”
* Cards only. (Just as their using now at multiple business checkouts)
* As the Exempt Ones craft the theft from the folks.
* 40+ Trillion of it. ✖️
Convenient:
* The 40+ Trillion 💵 currency out. ✖️
Next, a Data Center in space would cost a lot more than one on earth wouldn’t it?
//////
Musk is saying at first yes,but economies of scale will make it cheaper for space solar data centers. other hperscalers and china seem to agree.
The Reverse-Centaur’s Guide to Criticizing AI
If you are an exec at a dominant company with a growth stock, you have to live in constant fear that the market will decide that you’re not likely to grow any further. Think of what happened to Facebook in the first quarter of 2022. They told investors that they experienced slightly slower growth in the USA than they had anticipated, and investors panicked. They staged a one-day, $240B sell off. A quarter-trillion dollars in 24 hours! At the time, it was the largest, most precipitous drop in corporate valuation in human history.That’s a monopolist’s worst nightmare, because once you’re presiding over a “mature” firm, the key employees you’ve been compensating with stock, experience a precipitous pay-drop and bolt for the exits, so you lose the people who might help you grow again, and you can only hire their replacements with dollars. With dollars, not shares.
And the same goes for acquiring companies that might help you grow, because they, too, are going to expect money, not stock. This is the paradox of the growth stock. While you are growing to domination, the market loves you, but once you achieve dominance, the market lops 75% or more off your value in a single stroke if they don’t trust your pricing power.
Which is why growth stock companies are always desperately pumping up one bubble or another, spending billions to hype the pivot to video, or cryptocurrency, or NFTs, or Metaverse, or AI.
I’m not saying that tech bosses are making bets they don’t plan on winning. But I am saying that winning the bet — creating a viable metaverse — is the secondary goal. The primary goal is to keep the market convinced that your company will continue to grow, and to remain convinced until the next bubble comes along.
So this is why they’re hyping AI: the material basis for the hundreds of billions in AI investment.
>>None of the companies working on AI have made a profit.
Nvidia, the largest company ‘working on AI’ would like a word....$250B in revenue last year, $165B in EBITDA...sounds like they are making plenty of profit to me.
Plenty of companies are making plenty of money working on AI.
This is the reason that Charlie Munger famously said “Every time I hear “EBITDA” I substitute “Bull S4!+ Earnings”. That doesn’t invalidate NVDA performance as other technicals still support. I believe the Enron comparison has some validity in showing momentum driven stock performance requires investor confidence. Well that and hopefully NVDA doesn’t have a boatload of guarantees that kick in at a certain stock price.
It’ll blow up next year.
…
Based on?
>>None of the companies working on AI have made a profit.
…
I long for days on FR when such a statement would be backed up with just a few examples of the top companies that have yet to make a profit. I’ve held and added Invidia for a long time and don’t plan on selling any time soon.
Maybe we both learned something...I always thought a P/E > 0 possibly indicated earnings potential
Bingo. People don’t seem to realize the amount of productivity increases due to AI, accelerating everything. It’s in every field too. Not everything is synonymous with historical market troubles - this is all new, unseen before, technology that helps advance all other technology - so of course markets will rise. That doesn’t make it a bubble.
One should also separate the values of software AI companies and those like nVidia, providing the HW. Anyone paying attention to the latest nVidia HW realizes the staggering, mind boggling, advances being made.
Yep, they only like to point to the one he got right. He has been wrong a lot more.
Thank you, I am tired of this comparison also. Its like people just want to hate on AI and use anything to do it.
Sometimes I wonder how smart many investors are. I have seen stocks report earnings of 20% and have the stock crash because it was projected to be 21%.
I call that a buying opportunity. I see it time and again in the current stock market where common sense seems to be missing.
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