Chipmakers Post Longest Weekly Drop Since November

A resurgence in oil prices dragged down stocks and bonds, stoking concerns about inflation just days ahead of the Federal Reserve decision on interest rates. Brent crude settled near $117 as a flare-up in Middle East violence threatened supplies. Most S&P 500 firms fell even as selling pressure on tech shares abated. A gauge of chipmakers edged up, but posted its longest weekly drop since November. The Dow Jones Industrial Average slipped 1.2%. Treasuries relinquished a portion of the previous session's rally. Co-Host of Odd Lots, Joe Weisenthal says it's important to the US Economy that tech companies fire on all cylinders.

Look, one of the things I that is so fascinating right now is how we can simultaneously have charts that everyone knows is going to go up into the right. We all know there's going to be more demand.

We're like 100% certain there's going to be more demand for AI next year than this year. We're certain it's going to be much bigger than that the year after that. We're so much, we're certain it's going to be the bigger the year after that too. There's no question about this. And what's remarkable is that even with all this uncertainty, I could name you so many different theoretical speed bumps that we could fall into. So, for example, let me take a few.

Execution risk. So everyone's talking about the CoreWeaves in the world and their financing and so forth. These neo-clouds. Well, one issue is just how good are they, not I'm not talking about any specific company, how good are they going to be able at delivering them on time? That's an interesting question right there.

Let's take another one. Um, we all know that the AI models are going to continue to get rapidly better. Do we know for sure that there is going to be a lot of demand for extreme frontier intelligence? I don't know, the three of us, do we really need PhDs and beyond to do our job? I don't think so.

Still-- no, we don't. And there are a lot of economically productive jobs in the economy for which PhD level intelligence is totally unnecessary. So you think, okay, one day there's going to be a uh uh Fable 6 and a Fable 7, etc. Who's using them exactly for what? What can we can say, okay, maybe pharma design, pharmaceutical design, semiconductor design, maybe quant trading. It's not obvious to come up with a list of how many different things in the economy actually need PhD level intelligence and beyond. So then we're saying, well, maybe the demand will be at the lagging edge, the non-frontier, but that's when you get the super competition from open source, etc. So that's a really big question. Then of course, there's just the pure leverage going back to the CoreWeaves example. These are real estate companies in large part. They buy, they acquire either rent or they buy land and then they rent out their capacity and the GPUs to tenants, etc. Well, you know that rising rate environments have never been good for tenants and or for uh landlords. They're a landlord. And so there's so many things even if we stipulate that AI is going to get better and better and that AI demand is going to boom, there's so many still ways that things could go wrong for certain players within the ecosystem.

One thing that I didn't hear you address is the whole question of the productivity payoff here. The promise of where the trillions of dollars in capex are actually going to pay off in this economy. Where will that or where where could that happen?

No, it's a great question. Like is it obvi-- we know that I mean, we know that companies are spending a fortune on tokens. And have we ever heard of a company that said, you know what, we spent a fortune on tokens this year and now our costs are a we're a much more productive company. You know, no one's ever enthusiastic about layoffs, but a classic sign that a company is really getting juice out of AI is if they could really shrink their workforce. We haven't really seen that at all. The unemployment rate is at what, 4.2%, etc. I know it is a soft job market for new grads in certain areas. It's not like there's no pain in the labor market, but like there's companies spending hundreds of billions of dollars on tokens and where is the payoff? It's not clear yet. And nobody knows. And everyone intuits that there might be, etc. You know, it's important to remember, you know, Paul Krugman, he got mocked for that famous quote saying that the internet is going to have no more of a difference than uh than the fax machine. Well, do we know like how much the uh internet contributed to greater productivity in the United States? Talk to economists. Half a percent? Like there has been no productivity boom that's measurable from the internet. We assume that mobile devices, iPhones, etc., well, it's changed our lives, but has it made the economy more productive? Not entirely obvious. And so I think before we even get to this question of like, well, what are the productivity, where are the productivity breakthroughs from AI going to be, why don't we start by figuring out why we never saw any productivity breakthroughs from the internet and mobile technology?

Well, so one last question then, because I keep increasingly hearing, well, but the AI spend, it's really contributing to GDP. So, without it and if it starts to lag, is that something that kind of brings this economy to a halt or is there enough out there?

It's really worrisome. I mean, really like just like if you pull up a chart of any non-tech company that's a household name, it's ugly right now. You know, like pull up a chart of, pull up a chart of Nike, pull up a chart of whatever, any uh uh retail company. They are not looking good. Now, there's two possibilities I I could say. One is that maybe rates where the Fed has set them, even though they haven't constrained inflation or got them back to target as we would like, maybe they're too high for the non-tech part of the economy. Maybe a lot of the economy, the non-AI part of the economy is just buckling under higher weights. Or another possibility is that these companies are not operating well, they're not competing well with competitors out of China. Part of the story with Nike is that um people are buying uh Li-Ning and Anta sneakers and so forth. So that's even more worrisome than if it's just sort of like a rate story, because then you start to wonder, who are the industrial behemoths that we have in the United States that could carry the torch for the overall economy if we don't have these big tech companies firing on all cylinders.

Exactly. Like, like look elsewhere and see what's going on.