Special Episode: Here's Why AI Costs Still Worry Investors
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Hi, this is Caroline Hyde from Bloomberg Tech. Today, we're sharing something a little different in your feed, an episode from our colleagues at Here's Why, Bloomberg's weekly show that answers one big question in under 10 minutes. Host Stephen Carroll is joined by our Bloomberg Tech Eurobanker, Tom McKenzie, to dive into a story that's right at the heart of the tech world. the massive investments in AI data centres and the hidden costs that come with them. If you'd like to hear more episodes of Here's Why, you'll find a link to the podcast feed in the show notes. Hope you enjoy.
I'm Stephen Carroll and this is Here's Why, where we take one news story and explain it in just a few minutes with our experts here at Bloomberg.
It's 1030 p.m. in this AI party. It started 9 p.m. and that party goes to 4 a.m. And the reality is like, look, this is going to be a two to three year left in this bull cycle for tech. The tech sector is very strong because artificial intelligence is really a qualitative leap in the kind of technology that we've had over the last several decades. You're seeing an exponential growth of adoption and use of AI. The number of applications that are going to be using these AI is also growing.
Everyone has an opinion on where the AI frenzy is going next. But while optimism is rampant about the technology's potential, more questions are now being asked about AI's running costs.
We are putting mostly chips, silicon, into these data centers that have a lifespan of perhaps four years. Those chips, they depreciate very quickly. Even NVIDIA, there's a new chip every 18 months and it's 10 times as powerful as the earlier ones. The thing with the rally this year is that almost every investor knows it's all going to turn into pumpkins and mice at midnight. Only as Buffett would say, no one in the room has a clock.
Even with bumper results and bullish revenue forecasts, here's why AI costs still worry investors. Tom McKenzie, who hosts Bloomberg Tech Europe on Bloomberg Television, joins me now for more. Tom, the investor Michael Burry of Big Short fame is among those who's worried about these future costs of AI and data centres in particular. What's the concern?
Yeah, absolutely. Michael Burry putting on famously short positions, so shorting the stocks of Nvidia and Palantir before he wrapped up his fund. His concern does focus on the depreciation of some of these assets. By assets, I'm talking about specifically these AI chips, very expensive AI accelerators, 90%. of the market share is dominated by Nvidia. So across the sale of these chips, Nvidia has that significant market gain versus its rivals. And the concern is that as you get newer versions of these chips, the older ones essentially become less valuable and Michael Burry making the argument that companies, the hyperscalers, so the Microsofts and Alphabets and Metas of the world, are not properly accounting for how quickly these assets depreciate.
The other part of the concern, and it kind of ties into this, that you hear voice from the sceptics around the AI bubble, is that there are comparisons, they say, with what happened in the late 1990s. 1999, early 2000, the dot-com bubble, when it was the telecom equipment makers that, leading up to all of the online expectations around how our digital economy was going to change, spent huge amounts of money on building the infrastructure to power the dot-com era, and ended up losing a lot of money because the gains didn't come as quickly. The technology didn't evolve as rapidly as they had expected. Of course, on the back of that, you did get... some very significant players like Amazon, who came through the dot-com bubble and, of course, now remain one of the most valuable companies on the planet.
But there was a lot of capital, there was a lot of investment that was burnt in that process. And so that is another comparison that people are making. It's the depreciation around the assets and the chips that they're worried about, but also comparisons with what happened during the dot-com era and the pain that was felt by those telecom equipment makers that sunk so much money and to which they accumulated huge losses.
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