Money Mark

Heading into November I think the selloff in $NBIS, $CRWV and $IREN is getting a bit extreme when $NVDA B300 rental prices are up 52% since May and even older H100s are getting more expensive to rent. Meanwhile AI token prices have fallen more than half from their peak which tells you a lot about where real pricing power sits in AI economy. And while market worries about financing IREN just secured $363M against contracted GPUs and Nebius expects over $9B in customer prepayments which shows capital is still available for operators with real demand.

$AMZN CEO says the company still expects about $220B in cash CapEx for 2026, with spending expected to increase "meaningfully more" in 2027. "Customers are consuming new capacity almost as quickly as Amazon installs it."

There is nothing special about this pullback. Much of the panic surrounding neoclouds, AI capital expenditures, and the sustainability of the infrastructure buildout is simply the market searching for explanations for falling stock prices. When AI stocks were rising, record capex was evidence of extraordinary demand. When those same stocks started falling, suddenly the same spending became evidence of an impending financial disaster. One fact with two interpretations that depend entirely on the price action of the market. Go back to August 1998. The technology bull market had been running for about three years.Amid fallout from the Asian financial crisis and Russian ruble crisis, earnings expectations were deteriorating, valuations were elevated, and investors were becoming increasingly concerned about unprofitable Internet companies. On August 6, the New York Times published an article titled "Market Gyrations May Point to Shift in Investor Strategy." One fund manager declared, "Boring is going to outperform sexy." Investors were supposedly abandoning momentum and speculative technology shares in favor of profitable businesses, balance sheets, dividends, and traditional valuations. Russia defaulted on its debt. The Asian financial crisis was spreading internationally. The yen carry trade had imploded as the USD plunged 8% against the yen in a single day. US embassies were being bombed. President Clinton ordered missile strikes against Afghanistan and Sudan while simultaneously facing a scandal that would result in his impeachment. Major financial institutions suffered enormous losses, and the spectacular collapse of Long-Term Capital Management threatened the stability of the global financial system. Corporate earnings forecasts were falling. Investors feared a U.S. recession. Many of the same technology companies that had driven the bull market were now leading the decline. Many of them had fallen 40-60% from their 1998 highs. Even the Federal Reserve's first interest-rate cut on September 29 initially disappointed investors. The Dow fell that day and plunged another 238 points the following session. The news seemed almost uniformly terrible. But the market didn't care forever. After a violent reversal in early October, improving confidence in corporate earnings, Japanese banking reforms, and a surprise emergency Fed cut on October 15 helped restore risk appetite. By November, the Dow was making new all-time highs. Internet stocks were exploding higher again. What had looked like the end of the internet trade was, within about a month, actually a correction preceding one of the most extraordinary speculative advances in stock-market history. In today’s market, Microsoft just reported 48% Azure growth. Google Cloud revenue more than doubled. Meta expects $135–145 billion in capex this year and has announced plans for a potentially record-sized $97.5 billion equity capital raise. If the market really was that concerned over capex spending, instead of using it as an excuse to explain the pullback, the market would have sold off on the META news. Anthropic has now filed its IPO registration statement. We have midterm elections approaching, another consequential round of earnings, and a Fed that just held rates steady even as another hike is widely anticipated in December. There are plenty of potential catalysts over the coming two months. More importantly, this does not resemble the sentiment backdrop of a speculative bubble climax. Generational bull markets don't die midway through a basing period, but typically after euphoric saturation and a parabolic rally in leading names. Consensus on AI is deeply divided. Being loudly anti-AI has practically become fashionable. Some AI critics have even built enormous audiences around the idea that the economics of the industry are unsustainable. Plenty of investors seem almost eager to watch the entire trade collapse. That isn't the sentiment or narrative around which tops are typically made. The Internet trade didn't end in the panic of 1998. It ended after the extraordinary acceleration of 1999 and early 2000 when being bearish was the market equivalent of wearing a dunce cap. History never repeats perfectly, and today's rate environment is very different. But I think the resemblance in investor psychology is striking. I’d be genuinely surprised if we don't have at least one more months-long rally into new highs during this cycle. Whether it begins into the midterms, after the elections, around Anthropic's anticipated listing, or following further earnings confirmation, I suspect this correction will eventually look more like an interruption in a generational bull market than the bursting of a "bubble." The $NDX took four months to bottom in 1998. With the exception of a handful of leaders, most stocks that are holding up have been basing out since the May-July period. We could certainly go lower, but most of the signs point to another new high before this cycle rolls over. However, I’d place the odds of any additional powerful rallies afterward as increasingly unlikely given the fact we are already about to enter the fifth year of this bull market. I'd be careful about buying the dips next year, at least with meaningful size.

As someone who has personally spent $500k / mo+ on Google Ads for years, I can tell you with certainty: This revenue growth in Search is artificial & extremely unhealthy for Google’s business long term Search volumes are declining as legacy search is being increasingly cannibalized by non-monetized LLM queries Google’s response? Manufacture revenue growth via short-sighted, highly extractive, customer-hostile tactics. I.e. charge advertisers more for lower quality clicks, including clicks they do not want and explicitly did not approve Google to charge them for A few examples to illustrate: For all of its history until recently, Google operated on a 2nd price auction model I.e. if you bid $5 CPC and the next highest bidder bids $1 CPC, Google charged you $1.01 for the click (one penny more than the 2nd highest bidder) rather than the $5 you bid This was a genius move by Google early on as it incentivizes advertisers to input their true maximum willingness to pay rather than trying to play the game of bidding low and constantly adjusting to try to stay just ahead of the next highest bidder while still not paying too much However recently, Google silently deprecated the 2nd price auction and began charging advertisers as much as their bid and budget caps allow, regardless of what anyone else is bidding It’s a short-sighted cash grab at the expense of the long term health of the advertiser ecosystem Making thing worse, Google also recently nerfed keyword targeting precision Google previously had precise keyword targeting settings that allowed advertisers pick individual search phrases to bid on, defined down to the character w/ exact match or phrase match targeting This was one of the core features that made search advertising magic, enabling advertisers to run extremely precise campaigns based on exactly what their target customer typed But now, even if you bid on a specific term or phrase using the strictest exact -match targeting settings, Google will show your ad across 1000’s of unrelated keywords, labeling them as as “exact match (close variant)” The definition of “close variant” means whatever they want it to and changes constantly. The result is advertisers get billed for clicks that are totally irrelevant to their business and that their targeting settings explicitly forbid Google from targeting. Google does it anyway and there’s no ability to turn this off So now exact match is broad match, and broad match is just meaningless spam This is all very bad for advertisers, but for Google, it allows them to show your ad and bill you for clicks across 1000x more searches that were previously going unmonetized (mainly because they’re garbage queries no one wants) This is how you grow revenue atop declining search volumes Lastly, and perhaps most egregiously, Google quietly stopped respecting budget caps by a factor of 2x. For example campaigns we’ve been running for years with $1000 daily budget caps suddenly began spending $2000+ per day And the extra spend is entirely on the garbage keywords Google arbitrarily throws in as “exact match (close variants)” which have no value to our business, but can’t be turned off Google offers no refunds nor any recourse for overspend or spend on keywords you explicitly did not target These are not the actions of a healthy business. These are the actions of company whose core business is in decline but desperately needs to pump quarterly earnings so Wall Street will continue to fund insane capex while hopefully looking through their rapidly deteriorating negative free cash flow Google operated a benevolent monopoly for the better part of 25 yrs Meaning the value Google captured from Search was but a small fraction of the value it created, and that spread produced a potential energy that justified expectations of high earnings growth far, far into the future This is now no longer the case At the alter of AI capex, Google is sacrificing the golden goose

Citadel founder and CEO Ken Griffin says investors are “almost certainly” in the midst of an AI bubble during an interview with Bloomberg's Dani Burger at Citadel's annual Future of Global Markets Conference in New York youtu.be/mV1V0FXixDE