Yes, you read that right.
An AI bubble might be upon us…
But why now and what could it mean for your business?
Let’s cover that in the next 4 minutes.
Why might there be a bubble?
So there were two big things that caught many people’s attention this past week.
First, the claims about Microsoft canceling some data center leases, and second, Warren Buffet paying the biggest tax bill in U.S. history: a staggering $26.8 billion!
Here’s why each of these things matters:
Microsoft pulling back on AI data centers
According to TD Cowen, Microsoft has canceled several lease agreements for AI data centers and also interrupted many statements of qualifications (which usually lead to leases).
Why?
Not sure… But the firm is speculating that Microsoft may be in an oversupply position.
They think this raises questions about Microsoft’s outlook on the level of demand for AI in the near-future.
As a result, analysts have picked up on this to say that it supports market indicators of a bubble.
The main question being asked is, “How is AI going to generate returns in the short-term?”.
Long-term there’s not much disagreement about the technology’s potential, but short-term analysts are skeptical about how much revenue it can actually generate to fuel its expansion.
Berkshire Hathaway stacking up cash
In his annual shareholder letter, Buffet detailed that the firm paid $26.8 billion in taxes to the U.S. treasury in 2024 and told them to “spend it wisely”.
The reason?
The firm sold a significant portion of their Apple shares (approximately two-thirds), which yielded a whopping $90 billion!
Now as for the AI bubble, analysts have started putting the pieces together yet again…
The legendary investor has a track-record of pulling out of markets to prepare for economic downturns (a.k.a buying things at a discount later).
So speculation has begun that Buffet is stacking up on cash because of the building AI bubble, and is waiting for the crash.
So what does this mean for healthcare businesses?
For 98% of you, not much.
And even for the 2% of healthcare businesses which are giants (eg. the Mayo Clinic), it’s still not that big of a deal.
Why?
Honestly, Mark Zuckerberg did a pretty good job of explaining it in this interview with Bloomberg.
He basically said that many bubbles in the past have just been the result of everyone getting ahead of themselves.
For example, consider the dot-com bubble of the 2000’s. It’s not like the internet was a fad that was overvalued – it’s been one of the most valuable creations in the past century.
We just poured too much money into it back in the 90’s.
And if AI is in a similar position right now, all that means is that we might be overinvesting in it at the moment.
However, what we’re investing in is still very real, and is arguably the most important technology to adopt if you want to stay relevant over the next 50 years.
And the downside of not investing in AI is that you won’t be able to compete in the marketplace soon enough.
So the consequences of over-investing are smaller than the consequences of not investing.
Hence, why it reasonably makes sense for you to stay bullish with it.
TL;DR
- TD Cowin says Microsoft is pulling back on AI data centers, which analysts are using to speculate an overinvestment in AI.
- Berkshire Hathaway has stacked up a significant pile of cash, and analysts are speculating that Buffet is waiting for the AI bubble to burst.
- Healthcare businesses should still continue to invest in AI because the consequences of not investing outweigh the consequences of over-investing.
That’s all for this week.
See you next Saturday.
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