00:00Hi everybody, it's Spencer Akimian. Welcome back to another episode of What's Moving Your Money.
00:05On today's episode, we are going to be talking about the AI boom. Just how much AI is currently
00:12helping the U.S. economy. Whether or not the U.S. economy would be in recession right now without
00:18AI. Then we're also going to talk about some of the negative effects of AI, such as rising
00:25electricity prices and potentially even rising unemployment. So sit back tight, get ready and I
00:31hope you guys enjoy. So ever since the beginning of 2023, we have had an AI boom as a country. This
00:44famously began with NVIDIA's earnings report in February of 2023 that showed a massive beat.
00:52And at the time, if you recall, we were in a pretty substantial earnings recession and a pretty
00:58hefty bear market, particularly for tech. 2022 was the worst year for the U.S. stock market since 2008,
01:07largely on the back of higher inflation, higher interest rates and lower multiples, especially
01:12on growth stocks like tech. Then it all changed when in February of 2023, NVIDIA reported earnings
01:20and it showed a massive beat. Now, this beat came from the fact that NVIDIA supplies the chips that
01:28fuel the data centers that are required to store all this raw data that is necessary for LLMs,
01:37large language models like ChatGPT, like Grok, like Llama from Meta. All of these are powered by
01:45massive amounts of data that require the best chips available on earth and a lot of electricity.
01:53We are talking crazy demands for electricity that we simply do not have on our grid, which is pushing
02:00electricity prices up substantially, particularly in states like New York, California, Georgia,
02:07Virginia, places that are heavily invested into AI already. But we're going to get to that a little
02:12bit later on. I want to talk today about whether or not we would be in recession right now, not even in
02:19the future, right now, if we hadn't been getting so many tailwinds from AI. Look, in the latest quarter
02:25GDP report, AI contributed more to net growth than consumer spending did. Think about that. Consumer
02:32spending is 67% of the overall economy. AI spending is roughly 6%. So consumer spending is 10 times bigger
02:41than AI is. Yet, AI contributed more to our net growth than consumer spending did. It is exploding.
02:50The tech investments that are being made into AI right now, literally a once in a generation cycle.
02:57The last time we saw anything somewhat like this was during the computer boom of the 1980s and 1990s.
03:04Now, one thing that we have to consider with all of this spending, and we're seeing it in earnings
03:11reports is that the AI hyperscalers are really, really limited to a handful of companies, mostly
03:19in Silicon Valley and some in Seattle. This is not something that the broad tech industry is
03:25participating in. This is really limited to five or six companies and a few different niches that are
03:32benefiting all of this spending. So the gains are quite uneven. As an example, look at two companies that
03:40just three years ago had an identical business model, Snapchat and Meta, Facebook, Instagram,
03:47WhatsApp, all of the things that Mark Zuckerberg's company owns. A few years back, those companies,
03:52their revenues were like 99% correlated. They were ad companies. They went with the health of the
03:58economy. If businesses were doing well, if consumers were doing well, ad spend went up and those companies
04:04benefited. In this past quarter, obviously the consumer is weakening right now, but at the same
04:09time, AI is growing. So what did we get? We got Snapchat and Meta report pretty bad ad revenue growth
04:16for the year. But the only difference was Meta has a pretty large AI business now, and that exploded in
04:25growth. Usage exploded. Integration into other apps exploded. Efficiency in ad recovery exploded through
04:33all of this. And what ended up happening? Meta reported earnings that just because of the AI categories
04:39beat and Meta stock rose by over 10%. The same industry, Snapchat, because it only has exposure to
04:46ad, it does not have any AI exposure, fell nearly 20% after its earnings. The only difference between these
04:53two companies is that Meta now has a pretty significant AI investment section that Snapchat
04:59does not have. And it gets to my overall point. Right now, our economy is so dependent on all of
05:06this AI spending growth. And thank God it happened now because we have a weakening housing market.
05:13We have a weakening consumer. We have elevated interest rate. We have very high trade uncertainty.
05:19We have exports that are falling. We have rising inflation on our imports. We have food inflation
05:25that's rising. Right? We have so many headwinds in our economy right now. The only thing right now
05:31that is significantly helping to the upside is all of this AI capex spending. Now, we have to talk how
05:38sustainable this is. Because as you guys all know, at a point, the tech companies are going to reach a
05:44point of diminishing returns. They will reach a point where it is no longer logical to keep investing
05:50at a 40% growth rate into AI products, techs, chips, data centers, LLMs, research, everything,
05:59you know, engineers, all of the above. So that point is if we want to use the computer revolution as a good
06:06metric, likely about three to four years away, which is a good sign if you ask me, because we can
06:13hopefully ride this AI wave. Hopefully, I stress hopefully, I don't know if it'll happen, but we can
06:19ride this AI cycle through the soft patch in this overall economy such that we can avoid an overall
06:28recession. I think largely what the stock market is pricing is don't forget the stock market has a way
06:35higher exposure to AI, particularly the Nasdaq than the overall economy, right? 35% of the Nasdaq
06:43may just be AI spending, right? It may even be higher. But the average town in Nevada, 0%, maybe 1%
06:50is correlated to AI spending. So there is a chance that in the coming quarters, the coming years,
06:56we might get a stock market that is performing exceptionally well, particularly the tech sector,
07:03while at the same time, we are getting an economy that is not doing so well. One great example of this
07:10in the late 90s and even up until the early 2000s, in the beginning, tech was exploding,
07:16but the economy as a whole was softening. Ultimately, what ends up happening is that tech
07:22is not bigger than the entire economy. And ultimately, as the entire economy goes, technology
07:27stocks, which are a risk asset, just like anything else, will in the long run follow, right? In the long
07:33run, if you look at a 15-20 year cycle, the Nasdaq didn't really outperform the S&P or the economy
07:40overall. It was just in the short run that it did. And it can mask some of the problem. But the final
07:46thing I think we should talk about here on today's podcast is electricity prices. And also, let's talk
07:53about the unemployment rate as it stems from AI. I think it's very interesting. Usually, when we get a
07:59investment boom in this country, whether it's AI, whether it's computers, whether it was railroads
08:04before that, whatever it was, it was fantastic for the overall society. Because investments went up,
08:10which meant jobs went up, which meant wages went up, which meant incomes went up, which meant spending
08:15went up, which meant asset prices went up. And it was a self-fulfilling cycle to the upside. Now,
08:21the immediate effect of AI, because we have to place massive investments first before we get
08:27products, right? The main AI product that humans are using right now are LLM, right? But we can envision
08:33a world where almost everything in our daily life is involved with AI, but that is going to take
08:38investment. In the interim, the only tangible effect that most people are getting from AI is that electricity
08:45prices are skyrocketing. Here in New York, electricity prices are up over 35% year over year. In Georgia,
08:53they're up over 30%. In California and some areas, they're up 40%. And in Northern Virginia, where the
09:01majority of the data centers in this country are, the high performing ones, there are some parts of
09:06Northern Virginia where electricity prices are up 50%. Now, if the average person, the only effect they're
09:13going to get from AI for the next three or four years is that they're going to get rising electricity
09:17prices and rising inflation prices due to cost of living, this might be something that in the short
09:23run is, believe it or not, a net negative for not only society, but for the economy specifically,
09:28which is so strange to think about, but it is completely possible, right? The only tangible thing
09:34that we are getting from AI at the moment outside of LLMs is spiking electricity price. Now, at the same
09:41time, if one of the main goals of AI is to make companies more efficient and more productive,
09:48and it is to eliminate those repetitive, mundane, very, you know, easily switchable jobs, like
09:56bookkeeping, like tagging inventory, like accounting, like inventory management, whatever it might be,
10:03if that gets offshore to AI, do we actually have a scenario where corporate profit margins are rising
10:10due to this gain in productivity, which is great for stock prices, but we get rising unemployment
10:15because companies can lay off employees because they can replace 10 employees with one AI model to
10:21do its job. And that would actually be bad for stock prices, because if unemployment goes up,
10:26then spending is going to go down and how's the economy going to perform? So AI is so interesting.
10:31And I want you guys to comment, what do you think AI will ultimately lead to? Because I can see this
10:37going so many ways. I can see this being an incredible benefit for society, or I can see this
10:42being an incredible harm for society. In the short term, I can see AI being just inflationary, but in
10:48the long term, I can see it being massively deflationary. There are so many ways where this
10:53puzzle can go. And that's what makes markets so interesting. We really don't know. Every day is a
10:59surprise. Every day we have to learn more. So I want you guys to comment what you guys are all seeing as
11:04it relates to AI. And I hope you guys liked this episode. And I'll see you guys again on Friday.
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