Jason's Chips
Buy-Side AI & Semiconductor Investor
If AI, semiconductors and robotics deliver the economy's biggest productivity gains, they become a capital black hole that drains investment from other industries and lifts yields and real rates. Owning Walmart and Costco at 50x P/E or Coca-Cola at 25x would then make no sense, and few savers would accept a 5% Treasury yield while the AI economy booms. Investment demand jumps as savings fall, so the risk-free rate climbs and macro valuations compress. x.comÂ
Agentic AI could turn into a capital black hole that drains money from non-AI assets such as Walmart, Costco, Treasuries, bitcoin and gold. Tokens now create $9+ of consumer surplus per $1 of cost, so inference demand makes the cloud buildout self-sustaining. Productivity should push real rates and discount rates up, so 50x P/E for Walmart or Costco, 4% Treasuries and zero-cash-flow bitcoin and gold no longer make sense, making non-AI assets as risky as frothy AI leaders. x.comÂ
Costco and Walmart's valuations have diverged from most US food and beverage stocks. Most of the group trades near 20-year valuation lows, while these two have entered a mini-bubble. x.comÂ
Demand for compute remains strong and the AI investment cycle is still running, so the underlying AI opportunity has not changed. But if wars keep inflation high and rates stay higher for longer, even great businesses will see their multiples compressed, damaging the AI trade without necessarily invalidating it. The S&P 500 forward P/E has fallen from 23.2x to 18.7x, a roughly 5.35% earnings yield versus 5.47% on the 20-year Treasury; how long this backdrop lasts is unknowable. x.comÂ
Consumer staples should strongly outperform in 2026, one of the year's expected surprises, if the AI bubble bursts. In that scenario circular financing deals unwind, AI capex slows abruptly on return-on-investment worries and power bottlenecks, and depreciation and weaker demand wreck AI earnings estimates. PepsiCo, Coca-Cola, Procter & Gamble and Kimberly-Clark would then materially outperform the Magnificent 7, with PepsiCo beating most staples on better organic unit growth. x.comÂ
Debt-funded AI building is making tech stocks vulnerable to a 25-30% pullback as rates and energy prices rise. AI company borrowing reached $466B this year versus $101B a year earlier; weekly default-insurance trading on seven AI names rose from under $2B in July to over $9B in September. Keep cash for lower prices, though 30% earnings growth and a 19x market multiple argue this is not an AI bubble. x.comÂ
Expensive borrowing makes debt-funded AI projects harder to justify, pressuring AI stocks and the S&P 500. Inflation keeps pressure on rates. If Republicans lose Congress after the midterms, Trump could rely on executive action to speed permits, power projects and existing funding programs, keeping AI investment moving despite expensive money. Tech and risk assets could catch a bid if earnings hold and bond yields settle; Fed cuts remain uncertain. x.comÂ
Long-dated Treasuries are a good long because they lock in returns above 5% for 20 years, attractive versus other government yields. Yields should fall either way on AI, since an AI boom is deflationary and an AI bust means recession. x.com x.comÂ
US stocks face a potentially bigger selloff as rising inflation compounds concerns about AI spending. PCE inflation reached a four-month high of 3.6%, increasing pressure on the Fed to raise rates; Alphabet shares fell after disappointing earnings, slowing ad growth and more than $51 billion of quarterly capital investment. x.comÂ
Semiconductors could stay undersupplied for a long time as more capable AI per dollar creates more uses and drives compute demand. Micron and NVIDIA trade at low forward P/Es because investors fear peak cyclical earnings, yet current earnings show no slowdown. Shortages may worsen as AI adoption spreads, though the industry could remain cyclical; a reversal of the forced rollover trade is hoped for, not assured. x.com x.com x.comÂ
Apple has always acted as a defensive stock when markets rotate: when AI momentum weakens, Apple and consumer names like Amazon, Costco and Walmart tend to do well. x.comÂ
Long-dated US Treasuries could lose buyers to the AI buildout, pushing yields and government funding costs higher. Microsoft, Google and Amazon offer debt at a spread over Treasuries while generating over $100 billion a year in cash flow and 30%+ returns on capital, a better deal than lending to the government at 4.5%. Beyond about $725 billion of hyperscaler capex, debt for fabs, memory, power and the grid is about $3-5 trillion through 2030, comparable to Treasury issuance over that period. … Show more
