AI Market Decomposition

[Joe Leote]

Resource for drilling down into the AI Investment Bubble:

ARPU - YouTube

ARPU! Understand technology companies

Profits keep rising for AI compute services which signals a shortage. Meanwhile massive bond issuance (leveraged debt) and IPOs (paid-in equity) are being used to mobilize finance for capital expenditure including AI compute purchases. Rising prices does not mean there is a long term shortage due to the way profits are driven by investment spending and government deficits. My favorite economist, Hyman Minsky, uses a model for profits in the macro economy derived from the Kalecki-Levy profits identity with heroic assumptions. Applying those assumptions he concludes that Aggregate Profits = Investment + Government Deficit. In this model, in aggregate, capitalists earn what they spend and workers (consumers) spend what they earn. Firms can use new paid-in equity, debt, or retained earnings to fuel the AI venture investment boom. It remains to be seen which equity and debt fueled investments will be validated in the future via cash flows converting to retained earnings.

Joe