Joachim Klement writes:

I calculate that over the past four quarters, 93 per cent of US GDP growth was explained by tech investments. Even at the peak of the technology, media and telecom bubble [which burst in 2000], it barely reached 60 per cent.

The developers of large language models such as OpenAI and Anthropic are preparing for blockbuster initial public offerings later this year to benefit from investor optimism about their growth. Meanwhile, the hyperscalers Microsoft, Alphabet, Amazon, Meta and Oracle plan to invest hundreds of billions in the next five years in data centres to provide the computing power to run these models.

And this is where the maths of the AI boom becomes challenging. For each of these hyperscalers, I collected the consensus estimates of analysts for the capital expenditures and revenues between 2025 and 2030.

In these five years, capital investments are expected to rise by 20 per cent a year, a growth rate never seen before in this industry. Meanwhile, revenues are expected to grow 15 per cent annually. If we make the heroic assumption that there are no costs, then the additional revenue is the profit these companies are expected to make from their additional investments in AI data centres. Yet, even under these extremely optimistic assumptions, I calculate the implied return on investment is highly negative for all of them except Amazon.

These numbers show that if the hyperscalers continue on the current trajectory, the AI boom will become a story of one of the largest destructions of shareholder value in history. [Continue reading…]