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Friday Hyped Charts

Equities have gravitated back to the all-time highs after a two week spell of searching for something to worry about and coming up empty.

We tried worrying about inflation again, and then gave stagflation a spin — but neither stuck.

That leaves us with just “less rate cuts than expected” for a bear case, which won't do much to dampen animal spirits.

Certainly not among Big Tech executives who only seem to be getting more bullish.

Meta, for example, has already spent nearly as much on GPUs as the US spent on the entire Manhattan Project (inflation adjusted) — and has plans to spend even more, even faster.

Not to be outdone, Microsoft is reportedly planning to build a $100 billion supercomputer that’s so powerful it will take several nuclear power plants to run it.

Fortunately, all this computing power will do much more than just serve us up ads we’re more likely to click on.

(Note: Please click on the ads above and below.)

On Wednesday, Alphabet announced its new AI model, AlphaFold 3, which they expect to “significantly accelerate scientific discovery.” 

The new model will be immediately helpful in drug discovery, but its impact should be felt far beyond that: What can scientists do with a model that can “predict the structure and interactions of all of life’s molecules”?

What can’t they do might be the better question.

Investors are excited, of course: Yesterday, Mistral AI announced that it’s raising money at a $6 billion valuation, up from a $2 billion valuation just six months ago.

(By contrast, the FTX estate seemed inexplicably pleased with the 78% return on this week’s sale of the Anthropic shares SBF bought three years ago.)

Mistral’s rapidly rising valuation could well be a sign that investors are getting a little overexcited, but the legendary investor Stan Druckenmiller said this week that, while AI may be overhyped now, it’s probably underhyped on a longer-term view.

For investors, the long-term is of course more important, as he’s previously advised us: “If you invest in the present, you’re going to get run over.”

Druck, Meta, Microsoft, Alphabet, Mistral: They’re all investing — aggressively — in the future.

Maybe we should too then?

But to make it to the future, you have to first avoid being run over by the present. 

So let’s look both ways before we cross Wall Street to invest — by checking the charts.

The scariest chart of the week:

The best we could do for something to worry about this week was initial jobless claims, which rose to an eight-month high of 231,000. Not very scary, is it?

Broke: switching jobs.

Woke: not switching jobs.​​ People are increasingly happy where they are.

Home equity rising:

Mortgage rates back above 7% may make it impossible for anyone to move, but they can at least feel good about living in $16.9 trillion of equity. Two thirds of US households own their own home.

Aggressive investing:

The three biggest AI spenders are expected to spend nearly twice as much on capex this year than they did last. Whether that works out for their investors is an open question, but the capacity they’re building will benefit everyone, regardless.

Rational exuberance: 

It’s easy to think we’re in an AI investing bubble comparable to the dotcom bubble that burst in 2000, but it’s different — this time, there’s earnings. Per this chart from BofA, tech stocks haven’t outperformed any more than tech earnings have done.

Magnificent forecasts:

As hyped as the Magnificent 7 has been, their earnings forecasts have been underhyped. Mag 7 forward estimates (right) have risen 20% in the same time period that estimates for the other 493 stocks in the S&P 500 (left) have fallen 15%.

The future may be even more hype than we think.

Have a great weekend, future-investing readers.

― Byron Gilliam

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