YTD AI scorecard

Six weeks into the new year and AI related companies are sragging the market. They are using most of their Free Cash Flow (please see first chart below) to finance data centers and AI related research, and still need to tap the credit markets to fullfill all those commitments. In the second chart below, you can see the impact on the economy predicted by several studies on AI. Look at the Horizon column. They’re talking about decades to hit the real economy meaningfully, while most CEOs keep telling us the benefits are almost here. Both point in the same direction, but the timing is way off. Which takes us to the third chart, which is the YTD performance of the Mag 7, and you can see they are draggers, not leaders. It looks like the market is acknowledging the fact that the Return On Investment Capital is going to be low or negative in the short term, and valuations are high. That’s why we see the market flat YTD, although at an all time high. That’s why we are also witnessing sector and country rotation. AI needs another catalyst to continue to be the leader.

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