@RonDeSantis Hi Ron, so there's two different parts to it:
1. Hyperscalers ( $ORCL, $META, $AMZN): They're spending more than they have with profit ( $GOOGL is the rare exception, and $AAPL isn't really spending much relatively).
So markets are worried less worried it's translating into material revenue.
Especially with companies like Oracle taking on immense amounts of debt, rate cuts were a large driving factor in why it's slightly more sustainable (if you look at debt interest, it's massive), and cutting rates drives both forward expansion and material amounts of savings.
Due to the War in Iran, rising crude, former projections with cutting rates in 2026 are now gone.
This is compounded that there are worries that their AI buildout supply chain gets disrupted.
If you look at where their AI datacenter parts are made:
- it comes from Taiwan
- it comes from Korea
- it comes from Japan
It's global.
While the US might look like it's fine, since it's insulated to Oil, LNG, helium, and others needed for the semiconductor supply chain.
Our Asian partners are not in a long drawn out conflict.
So when you look at companies in Asia that are more small and niche they are struggling.
And this gets compounded tens of times until it reaches all the way down to the end Amazon Web Services AI datacenter (increased costs, lack of supply).
2. AI as a whole: Investors are very bullish on it.
It's just how we get there, and America looks strangled by China optically.
- America is spending way too much on it, with China and others distilling our latest models (need KYC endpoints), and reaping all the benefits.
- As we scale our AI programs, it's becoming increasingly reliant on Chinese companies.
I'd argue it's because America lacks the rare earths, which should be our #1 national security priority.
This is needed to make new generations of AI hardware, robotic supply chains, and Space.
They're all controlled by China and Russia. Even the leading "Western" companies, I've identified they're mainly relying on China/Russia still.
And this is one of the biggest vulnerabilities in securing our frontier programs.
If you look at photonics (how AI hardware is sped up by light), we no Western supply chain to fulfill our needs. It's $AXTI (in China), and Vital (in China) as the two main sources of materials needed to make them, that gets passed down to Japan, or other companies before they end up in US.
If you look at our humanoid program (how we move AI to the real world), all the bodies of $TSLA Optimus are made in China.
American supply chains lack the rare earths needed to make the components because it gets too expensive.
3. Disruption in the Middle East
A large part of the recent drop is mainly due to liquidity. Our partners in the UAE, Middle East are largely funding private markets (think OpenAI) and a lot of their spend going to AI markets.
They're also one of the biggest investors in Mag7 from Meta to Microsoft.
If their oil fields continue getting disrupted they may have to pull out liquidity from US markets.
This impacts both the amount of money these companies can spend on AI. As well as causing a drop in American markets from selling.
If there's any takeway: Please make Rare Earths Amercia's #1 national security priority. President Trump already invested in $USAR, $MP, and a few individual names.
But there are many more extremely critical, yet unprofitable companies that are needed to make AI, to self driving cars, to robotics. And we need to break our reliance on China / Russia.
