Biotech2k
Biotech Investor, AI-Driven Drug Discovery
Amazon, Alphabet, Microsoft, Meta and Tesla look like losers of the AI arms race, because AI has turned tech from an IP problem into a spending problem. Whoever spends most builds the biggest AI, and sunk costs force them to keep outspending each other by hundreds of billions a year on technology that may never return a real profit, like the internet buildout. Chip, neocloud and power suppliers win regardless, and at least a few of the big names could go bankrupt trying. x.comÂ
Hyperscalers like Alphabet are wasting hundreds of billions on AI that enriches suppliers rather than their shareholders, so investors should dump them and buy the suppliers. Alphabet now has negative cash flow from extreme AI spending in a race to the bottom on compute. As in the 1999 browser wars, AI will be given away free, only one to three of a dozen players will win, and at least one hyperscaler may go bankrupt; suppliers get decimated later as demand collapses. x.com x.com x.com x.com x.comÂ
AI suppliers' profits and signed demand distinguish this buildout from dotcom overcapacity. AI leaders rose 2.9x on 3.1x earnings growth versus 7.4x on 2.1x before 2000; cloud providers have $2.3T in signed backlog. Alphabet, Microsoft, Amazon and Meta could repay debt with about six months' cash flow, unlike 2008's leveraged banks. Micron has multiyear take-or-pay deals and ASML has orders years ahead. Memory profits are cyclical; TSMC, ASML and GE Vernova remain favored in AI's early innings. … Show more
Hyperscalers' incremental return on capital is cratering, so hard spending decisions are coming. In the June quarter, Amazon, Microsoft and Alphabet grew LTM EBIT 20% but needed 38% more deployed capital, before token prices cratered and with much demand from non-self-sustaining OpenAI. Compute and models may become a utility-like commodity. Insiders are selling, with Jeff Bezos filing to sell $4B of Amazon stock, and Google's $25B bond deal widened hyperscaler credit spreads. x.com x.comÂ
Diversified cash flows in the billions make the AI-buildout basket more appealing than standalone model companies. Many members look reasonably priced and have longer records of delivering returns; Anthropic and OpenAI look much more like gambles at current valuations, though either could appeal at the right price. A possible equal-weight portfolio to revisit in five years includes Amazon, Alphabet, Microsoft, Meta, Oracle and SpaceX. x.com x.comÂ
Deployment limits will slow AI hardware spending and expose cyclical suppliers such as SK hynix. Amazon has hardware waiting for power, and Broadcom's CEO said some clients delayed shipments because they could not deploy. Cheap forward multiples can mark a cyclical peak as analysts extrapolate growth. The slowdown could have begun or be a year away; timing is uncertain, so reducing cyclical risk in favor of healthier, genuinely cheap names looks better. x.com x.com x.comÂ
AI infrastructure bottlenecks could give eight stocks as much as 18x upside. Nvidia supplies frontier-model GPUs; Broadcom and Marvell supply custom silicon and networking; TSMC makes advanced chips; Micron supplies sold-out HBM; Vertiv provides power and cooling; Palantir monetizes enterprise AI; Alphabet spans TPUs, research, cloud and apps. The list tracks where AI infrastructure spending is flowing. x.com x.comÂ
AI embedded throughout software could bring huge future token spend to Amazon and Alphabet, whose AWS and GCP clouds host software builders and offer AI platforms. Ramp data show VC-backed firms spend 10 times more per employee on AI monthly than PE-owned and other firms, a possible leading indicator of software using more tokens relative to people. VC-driven demand is vulnerable to capital-cycle swings, but longer term incumbent software may become AI-native or be replaced. x.comÂ
Meta looks unattractive because its fines, capital raises and AI capex make the math ugly. The stock could trade back to the $500s, while hyperscalers probably have to make those raises with equity down 15-25%. Muse looks like a fad and average users may not need AI agents, matching LogicalThesis's view. x.com x.com x.comÂ
AI hyperscalers' heavy bond issuance can crowd out the corporate AI spending they depend on. After hyperscalers flooded the bond market all summer, a company rolling its Covid-era debt 5% higher has less left for an AI budget. And if every valuation and megatech management guide rests on commitments from Anthropic and OpenAI, they rest on unaudited financials never reported to the SEC. x.com x.comÂ
AI spending ultimately flows back to the hyperscalers, which still look overlooked by retail investors. Alphabet, Meta, Microsoft and Amazon may be near all-time highs now, but they should reach new highs in roughly three years. x.com x.comÂ
The race to win AI is keeping Alphabet on a reckless spending path despite the damage to its share price. The expectation that spending would moderate has been wrong for a year; winning still takes precedence over the financial consequences, and a course correction has yet to arrive. x.comÂ
