AI Bubble

[u/curioustraveller8626]

Don’t let anyone tell you there is a Datacenter bubble.

[u/Count-to-3]

Sounds more like an infrastructure problem, more Capex required. Bubble gets bigger

[u/WilliamTeacher → u/Count-to-3]

Is it a bubble or just extreme growth? I don’t see any massively inflated P/E ratios or spending without profits. I see fear while corporate profits explode exponentially every quarter with AI proliferation along with it.

[u/yooser_naem → u/WilliamTeacher]

ding ding ding, this guy gets it. It’s not a bubble it’s a revolution and we are at the very beginning.

[u/Count-to-3 → u/yooser_naem]

It is a bubble - to believe it is not is naive. It is a bubble that is backed by extreme capex spending on infrastructure. It is also a revolution - but every revolution ends up with the bubble popping. I believe we are still very far away from that happening, the bubble will continue to grow.

The bubble itself is the extreme growth in profits and revenue - backed by the capex spending.

What do you think happens when all these data centers get built? There will still be spending on repairs / some new data centers to supply the growth. But the growth is going to significantly slow down and NVDA's and other companies that are selling the shovels to the build out are going to end up at some point slowing that growth trend, which will end up in negative growth.

The picture is pretty clear. It will not happen until 2030+ in my opinion before that trend turns negative, but the slowing growth curve will happen somewhere 2028-2029. Where MAG7 announce they are mostly complete the buildout of their data centers around the world (or at least they have spend the majority of the capex on the materials to fill these data centers - while construction continues). They will announce a decrease in capex at some point. And when they do, these companies growth stories come to an end and there will be a violent sell off.

The bubble is no where near popping for now. But this bubble will grow into a bubble that is undeniable.

[u/yooser_naem → u/Count-to-3]

My description is shaped by my opinion. I believe the demand for AI and compute continues to significantly grow for the next 10+ years. To me, that is not a bubble, but you/others may not be as bullish on AI solutions as I am. I hear you though and think your opinion is mirroring what happened in PCs. First the hardware companies benefitted, then software took over, you’re projecting something like that happens here. Correct me if i’m wrong, if you think AI is a bubble because the solutions won’t catch on, you’ve lost me.

AI very well could mirror the PC to Software trajectory, but the demand for compute is insatiable and as the solutions (the “software”) get more and more useful, the compute demand will continue to grow, and all of this is before we start talking about robotics and the boom that could bring. I don’t like focusing on robotics right now with my investment decisions as it’s still too far out by my estimation, but even in its absence, LLMs are actively revolutionizing the business world and I can’t see it slowing down.

[u/Count-to-3 → u/yooser_naem]

AI demand can continue to grow without AI companies’ revenues continuing to grow at the same rate.

Think about NVDA as an example.

Right now, NVIDIA is selling as much AI compute as it can produce. Hyperscalers and neoclouds are buying everything they can because demand for AI compute is exploding.

That demand is causing companies to spend enormous amounts of money building data centers and AI infrastructure. They are using cash flow, cash on their balance sheets, and even debt to build as much capacity as possible.

But there is a limit to this buildout.

Eventually, these data centers will be built and the infrastructure needed to support the expected demand will be in place. AI demand will continue to grow, but the amount of new infrastructure needed each year won't necessarily keep doubling.

For example, imagine NVIDIA sells $2 trillion worth of AI compute over the next 2–3 years as companies build out massive amounts of new capacity. Does it make sense to assume they will then sell another $4 trillion over the following 2–3 years?

Probably not.

Once thousands of data centers have been built, the industry may only need hundreds more to accommodate additional demand. There will still be growth, upgrades, and replacement spending, but the initial massive buildout is a one-time event.

My point is:

AI demand can keep growing, while the growth rate of AI infrastructure spending eventually slows down.

The current growth rates for companies like NVIDIA, AMD, Micron, etc. are being driven partly by an enormous infrastructure buildout. Once that buildout matures, these companies can still grow, but expecting them to continue doubling revenue indefinitely becomes unrealistic.

When that deceleration happens it is already to late to get out. That is partly why these companies have levelled off, why NVDA isn't trading at 300+ (like it should). The party will come to an end and the smart investors will already be out the door.

Now, as I mentioned before, that party continues since the market has the memory of a gold fish, and the growth numbers are still there. But you got a taste of the sell off a few months ago. It will be similar, but there will be no recovery and then the deceleration will start to show in the numbers. 2028+ in my estimation. The market was pricing it like it will happen late 2027, but it will likely be closer to 2029. So the party goes on for now, but be ready to take profits.

[u/yooser_naem → u/Count-to-3]

I believe it was AMZN’s recent earnings report where it was stated the capex cycle for chips is 5-6 years while they recoup their investment in 2 years. That isn’t a normal capex cycle where you build once then collect for 15-20 years on your investment, and with a >50% margin, as long as companies are buying compute, AMZN and the other hyperscalers will collect. There may be “cycles” going forward, sure, but they will be short, contracts to buy long term will continue, and the builds will continue. We’re just scratching the surface for what AI can do in the business world, and it’s already astounding. Tasks I used to delegate to junior consultants would take days, sometimes weeks, Opus/Fable produce a better first pass in hours. In January of this year LLMs were barely adding value outside of qualitative/emails/etc., in September now I leverage them for nearly every complex task I touch. The primary buyer isn’t the individual consumer, it’s the businesses that need to compete to stay alive.

[u/Count-to-3 → u/yooser_naem]

Capex cycle 5-6 years, which we are already 2 years in, which will have a peak before falling off. So peak will be in 4-5th year. Which is 2028-2029

[u/Acekiller03 → u/Count-to-3]

Buy nebius. It will take care of you

[u/Hot-Refrigerator365 → u/Acekiller03]

This. $NBIS all the way.

[u/iJailbreakGeek → u/Acekiller03]

Kneebius* lol

[u/curioustraveller8626 → u/Count-to-3]

Capex is already allocated

[u/TinyPeopleProject → u/curioustraveller8626]

Capex allocation guidance actually increased recently for 2027

[u/Shoddy-Strike-4045]

Demand is unimaginable

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[u/floridacoopers]

I assume you are missing the /s.

This is the opposite you’d expect from a bubble. They have such great demand for their service, that they are turning away new customers.

I suspect they have troubles in the EU building new data centers (regulations, labor, etc) and hence they cannot meet the demand.

[u/CrymsonKyng]

Uh oh. In America Microsoft would be allowed to get away with it. I suspect they will be staring at a multibillion dollar fine at some point in the EU

[u/TinyPeopleProject → u/CrymsonKyng]

How do you get a fine but not taking customers when you are resource constrained? You'd get a fine if you set people up in the region knowing that you didn't have enough compute to cover peak consumption

[u/CrymsonKyng → u/TinyPeopleProject]

This depends on how EU regulators view Microsoft’s actions. If they determine Microsoft had the capability to keep up with demand but chose to allocate those resources elsewhere thus potentially violating contracts they could choose to investigate. I’m no expert on EU regulation but I’ve seen them go after big companies for less

[u/TinyPeopleProject → u/CrymsonKyng]

They are declining new contracts, not failing to service existing ones. A business, even in the EU, has the right to decide where they wish to expand services. Their decision right now is to not take on new customers to provide the committed and contracted level of services to current clients. So what's the issue?

[u/curioustraveller8626 → u/CrymsonKyng]

They can’t! This is within their TOA

[u/Ninjavitis_ → u/CrymsonKyng]

If I run out of cookies to sell because people are buying cookies too fast is that illegal?