Al,
What is that word supposed to even mean? What does it have to do with anything? Is it an econ term? News to me.
In this context, it means having a positive or hopeful expectation of the results of future events - and obviously was being used in response to D20’s post contrasting optimism vs. naysaying. It’s not econ jargon, but it’s frequently used in discussions of economics, since whether individuals are optimistic or pessimistic can have important economic effects.
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Only after the horses have left the barn.
If you know about econ optimistic or pessimistic is not the topic.
This headline is for the civil unrest that will happen as we enter a Great Depression.
BREAKING NEWS
Doug Mills/The New York Times
Trump Tells Top Brass That U.S. Cities Should Be ‘Training Grounds’ for Military
At an unusual meeting of generals and admirals, President Trump voiced a familiar litany of culture-war talking points and said the U.S. “should use some of these dangerous cities as training grounds for our military.”
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It is a wrong question. I understand the comparison, and the right questions is, knowing how it played then, how will you invest in 1998??
This AI rally has more legs.
To answer my own question, we were young, we had little money and very, very conservative. How conservative?? My 401(k) was invested in money market equivalent option.
I will advise my young self, go buy the Juniper, Cisco, Sun Microsystem, etc there is a phase to make money and there is a phase to play defense. You are young, healthy, both (me and my wife) are going to have very successful careeriers, even if you lose all your savings, that will be a rounding error of the money that you will end up making in future, it is time to play offense, son. Lastly, when you understood the long-cycles and strength of companies, don’t be scared and settle for small profit.
Separately post 2022, I will also advise him, hold on to your Apple, MSFT, AMZN and WMT shares, “Longer the base, higher in space”.
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Here is a recent AI implementation.
Lufthansa to cut 4,000 jobs as airline turns to AI to boost efficiency
Lufthansa to cut 4,000 jobs, turns to AI to boost efficiency
AI is only a “partial” part of those job cuts.
From your link:
The cuts come as part of a broader restructuring strategy prioritizing digitization, AI and automation.
…
artificial intelligence had partially helped to shrink the company’s headcount by 40% down from 5,000 employees to almost 3,000.
Additionally:
Lufthansa also reported that it expects adjusted operating margin to reach 8%-10% from 2028, an increase from its previous goal of 8%
It doesn’t look like this is going to drive significant new margins - but instead help it largely maintain current margins. It recently had an earnings miss.
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Owning $WMT was not fun… certainly not for me… it was a long 15 years of the stock going nowhere… we all remember history differently, of course 
Was there overcapacity on some infrastructure buildout like fiber, yes. But the internet itself, turned out very very huge. From dating, to buying house online to old people meeting online, discovering long last loves and loved ones… internet became part of our life.
@Goofyhoofy For you even 70 yr old are young puppies
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For all those asking for the use case.. please read the headlines…
$WMT said there headcount will remain flat for the next 3 years, possibly 5 years (internal memo) because they are going to leverage AI, many roles will change, they will hire folks with AI skills, and some roles will be ‘exited’… but headcount is going to remain same.
$ACN Accenture laid off 11K employees, because they are not AI ready and there is no underlying business to employ those folks
$PLTR CEO saying we are going to grow our revenue 10x while reducing our workforce from 4100 to 3600.
So there is your use case, which is showing up in employment numbers, which everyone from administration to Fed are overlooking.
For Divi’s of the world, when OpenAI raised $6B I think about 18 months or so ago, for a company with very little revenue, that was a very big amount, bigger than big IPO’s… the private valuation was ridiculed… now open AI is talking about investing something close to $500 B, a money they don’t have, and there is no way of earning that in the near future they are talking about. When I say they don’t have money, don’t rush to point out $NVDA is going to invest $100 B, that deal start very low, and as OpenAI GW investment grows, $NVDA will release the capital. The entire deal with $ORCL, it is not clear what are the contract terms, and how enforceable, etc.
There are reports that are talking about $800 B revenue run rate required to justify existing AI investments, let alone future investments.
So far we have seen significant, step function gains in AI capabilities. Will this continue? I devoured everything that Jensen Huang has to say. I buy his vision, not his timeline.
Will there be a shakeout??? Absolutely. Undiscovered companies, a la deepseek will emerge, and upend some existing players. The 4 teenagers in palo alto or shenzhen might come up with a software product that might upend some application software companies, etc.
But, AI, as a skill, the applications of AI is here to stay.
My mantra is we are still in the early innings, so you need to dance, make money, and you need to set aside some for rainy days, and when it crashes, you can go cruise, vegas trip and travel the world.
Until then, you need to dance…
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No one’s asking for the use case. We’re questioning whether the use case is big enough to justify the many hundreds of billions being spent to build the infrastructure.
It’s not enough that AI does some things that are useful. It has to generate 5x more revenue than the entirety of the global subscription software sector does today.
Well, the article that prompted this discussion says that it’s already stopped. That the last versions of all the major AI providers have provided only incremental gains off prior versions, and modest gains at that. Which is what led to the discussion of, “uh oh, maybe there isn’t enough value in the use case to payoff all this infrastructure spend?”
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Then you are asking absolutely wrong question. This is infrastructure build phase. The AI companies are investing and building the infrastructure with the hope of generating the revenue in future. Most of the capital that is being raised is not from public, but from private capital. So, you are mostly locked out of even getting into this cycle of capacity build. None of the top AI companies are listed… but if tomorrow OpenAI comes up with $1 Trillion valuation IPO, there is a good chance they are going to be oversubscribed!!!
We will end up with excess build, that is the nature of the game. How far this rally will go and when it will end, needs to be seen. Remember we had a large group of erstwhile Berkshire clan, who were claiming market is/was overvalued for the last 15 years… that is right from 2010… I am not mocking them.. rather learn a lesson from them. Be humble to accept you don’t know. If you are too worried then take some money out of the market or you can completely even exit US markets. Just be comfortable with your allocation.
I have not read that article, but I don’t have to, I disagree with that notion. The step function gains are truly amazing and it is getting better. Just the new Google video release is stunning, and a true step function gain. Some of the medical, and research functions are step function gains.
There are step function gains being made. There is a reason, every major tech CEO wants to invest $100’s of Billions into this technology, they would rather lose money than caught with underfunding.
For @Goofyhoofy there is a difference between these CEO’s and dot.com era’s… these CEO’s are already making $100’s Billions in profit, the dot.com CEO’s were relying on customers who were not making any money.
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Why is that the wrong question? If the product isn’t generating much revenue, then the infrastructure build phase will have to come to a halt. Which means that all the companies that are valued based on rosy projections of future AI revenues will lose their valuations. Just like the dotcom bust wiped out not just the internet companies (like Pets.com), but also decimated the valuations of the infrastructure builders (like WorldCom or Cisco).
Most of the top AI companies are listed. In fact, they make up the entire top ten largest market cap companies, except Saudi Aramco: NVDA, MSFT, AAPL, GOOG, AMZN, META, AVGO, TSLA, and TSM. Those companies all have the valuations they do because they are either making physical AI infrastructure (NVDA, AVGO, TSM) or are expected to be major players in an AI world. If AI is a bubble, then all of those companies will take a major hit.
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Does nobody here remember “dark fiber”?
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Not to put too fine a point on it, but you’re talking about Pets.com and eToys and similar. I’m talking about the great companies which were profitable, which had hundreds of thousands of paying customers, and who (supposedly) knew what they were doing.
Here’s a partial list: AT&T. Laid thousands of miles of fiber-optic cable.
Cisco: sold tens of thousands of routers to companies great and small to handle internet traffic.
MCI: which later folded into WorldCom which was brought low by an accounting scandal, but not before thousands of miles of fiber was laid.
Sprint: had it’s own fiber optic national network
Lucent: a major equipment supplier to telecoms and other providers around the world.
Nortel: by market cap one of the biggest telecoms in the world at the time.
And others: Corning, Level 3, Qwest and still others. Intel, Microsoft, even Oracle took real hits because the cheery projections they had made didn’t come true. All real, actual companies with smart CEO’s who felt they had to dance because the music was playing so loudly. And then it wasn’t.
OK, and that’s great for WalMart. In 2018 they had 2.3 million employees. From 2019 to 2024 it went: 2.2, 2.2, 2.3, 2.3, 2.2, 2.1. So they’ve been reducing even without AI, and if they are “staying flat” then they’re not making a lot of “extra” progress, it would seem. So they can “avoid” a couple billion in employee costs (supposedly).How much of that do they spend on the AI to accomplish it, and are those employees who remain better compensated to make up for the skills they have to use the AI in the first place?*
Note that I’m not saying there isn’t a place, and that some things will be handled better or cheaper.Maybe they will. In the meantime, how much (please quantify) will WalMart pay for this privilege? Now multiply that times 20, as Wally has about 7% of all retail sales (although I don’t think Helen’s Homemade Cheescake and Quilt Store and similar are likely to be paying for a lot of it.) So tell me what the projected revenue for this AI wonder is going to be? Thanks. No double it, triple it, quadruple it and tell me if that justifies the kinds of monies being spent now.
And then go back and say, “Gee, I wonder if the CEO of Ciena or Global Crossing ever did that kind of simple math?”
[I was at a Walmart superstore a couple days ago≥ Very busy, mostly with kids and old ladies opening boxes and stocking the shelves. I don’t know how AI is going to help them open a box quicker, but I’m willing to listen to the logic of it. ]
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Walmart didn’t actually reduce the headcount. Instead they offloaded certain functions to 3rd party firms, business processing firms etc. I know people who were in their accounting department for a long-time were moved to a 3rd party company as part of this restructuring.
Net-net they didn’t reduce employee count in the period they mentioned it.
In some areas, people who are going to be able to use AI to do more value add tasks could (should) potentially get higher compensation. But lot of other areas it is not necessarily a comp decision, rather either you are fit for the future organization or not. If you are not, then they will be ‘exited’. Because company is moving in a direction and those who want to use ‘typewriter’ are not a great fit.
The $WMT revenue growth is not going to change. What is going to change is they have a very huge back office, supply chain, vendor management, store management, even personnel management, everywhere AI is going to come. There are over 200 AI projects in play.
I will give an example, someone who is very close relative to me is managing walmart treasury. That is a few billion dollars… they are already efficient, it is just 2 people org and with the new AI tool, they are able to generate additional basis points… that is additional $4~$5 M, for a company like $WMT it may not show up in their margin but certainly adds up, and if that individual got a higher comp for that, she certainly deserves that, I hope she gets it.
Take $CL colgate-palmolive the country exists for 220 years, they know all about product placement, their locations, etc. Today they are using AI, which can run billion combination to determine the optimal setup to earn the highest margin.
$JPM, is able to create new investment deck within few minutes, what would take bunch of junior bankers few hours.
Do not confuse how profoundly the technology will impact the economy, companies, people and future with stock market movement.
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The physical AI is coming. Today $AMZN uses over a million robots in their warehouses. $WMT is getting ready for the physical AI. It will not help them to open quicker, it will open and replace it and eliminate those jobs. When the $WMT CEO said the headcount is going to be flat, be afraid, because someday it is going to decrease.
I distinctly remember, don’t want to name the person, who in erstwhile Berkshire board mocked, how complex it is to get a Burger order with all its combination correct, and the such machines will be more expensive and humans will be cheaper and more smarter than machines… now most places there is no human to take your order, people even order coffee online and share their ETA so that they have the coffee waiting for them ready and hot!!!
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What was it? The bridge to nowhere went from one Alaskan town to another.
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There are millions of unsolved problems. From anti-aging to intergalactic travel to meaning of life to sustainable energy. There are 1 Trillion galaxies and we cannot even go to the moon. The entire phama industry is mostly patches on patches and don’t cure anything.
If you expand your perspective, money becomes less meaningful.
Intelligence (Artificial and human) and is far more important.
OpenAI is valued at $500B. Some think it is obscene valuation and want to see evidence of revenue and profits. OpenAI investors think it is undervalued compared to its potential.
We are just getting started. Sam and Schmidt and Jensen and Elon and Zuck know what they are saying. Be humble. Listen to the experts.
When Amazon Echo was released, the erstwhile Berkshire board sage declared yet another product from Amazon which is a loss leader, there is no purpose, they will be showing they are selling lots of Echo but every sale is a tiny loss!!!
Fast forward today, Echo with AI driven Alexa+ voice assistant is sitting in many people’s house and helping them order on Amazon!!! $AMZN created a product and installed it in as many as household possible before anyone could imagine AI… They are playing long-game. Not your next quarter revenue.
BTW, 2 years ago people questioned about openAI’s investments, today OpenAI is having 800 M MAU (monthly average users) with $12 B annualized revenue run rate. You can make your own investment decision whether to be part of that build phase or hide in treasuries, CD, or REIT’s, etc.
But technology future is not build with chicken little attitude. Those brave, fearless, willing to do what it takes, push the envelope and tech boundaries. They may fail, there companies may fail, but they have helped to move the world further ahead.
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We all have cognitive bias. If someone gave you hammer, then you are going to look for nails, it is called Maslow’s hammer. So, if you lived through dot com crash, GFC then you are going to see everything a $CSCO, or Lehman Brothers…
From evolutionary point, it is a good thing to avoid the waterhole infested with crocodiles… but today they are not that helpful.
Someday this bull market will pause, come to and end… AI cycle will will go nuts and excesses will catch up… but you cannot be worried about worst outcomes and invest…
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