Strippers, Credit Cards, Basement A.I., And Economic Collapse

“I’ve calculated the precise distance, taking into account the acceleration and wind resistance retroactive from the moment the lightning strikes, which will be in exactly 7 minutes and 22 seconds.” – Back to the Future

It’s easy to confuse Stephen Hawking and Tony Hawk.  Both loved ramps.

Everything is fine before the car hits the wall.

And everything looks fine.  Let’s think about the economy compared to a car.

The car is at a stop sign.  It’s moved zero feet.  It’s at rest, and it isn’t accelerating.  I know, I know, still no reason for a woman to be behind the wheel.

Now it starts to move.  It’s moved 200 feet (10 kilometers).  It’s now moving at around 15 feet per second (10 millicuries/fortnight).  Since it was initially at rest, we can assume it has accelerated.  Accelerated is just a fancy term for “put the pedal down”.  I accelerate smoothly at the same rate since I’m neglecting air resistance and have determined that the world is perfectly spherical, frictionless, isothermal and isosomethingelse.

I hear the Orc© siege engines used Mordor oil.

Eventually, some time down the road the car reaches my desired speed, which is five miles over the limit, just like everyone else.  I pull my foot back so that it’s moving along at a constant velocity.  I’m chewing up the miles, and soon enough will be there at the appointment to have my backhair waxed off again.

Reasonable, right?

NO!  This is a catastrophe!  It’s hitting a brick will.  I mean, it’s a catastrophe if my car is made by Nvidia©.

Nvidia® has a Price to Earnings ratio (PE) of 31.  That means that people are betting that not only will Nvidia™ keep accelerating, it will do so for a while since it would take 31 years of earnings to equal the current stock price.

Nvidia© is the largest company in the world at nearly $5 trillion in valuation . . . has to get about 40%-50% bigger to match the same PE as, say, Microsoft®.  That’s the bet on companies like that.

But A.I. is different.  The bet isn’t that the company will keep growing, the bet is that the growth will keep accelerating.  Forever.  That’s what keeps Jensen Huang in champagne, leather jackets and hot chicks.  Okay, he’s apparently happily married, but I’m not letting the truth get in the way of a good line.

What gets burning hot right before they freeze?  Laptops.

But even the projected growth of A.I. is . . . not going to keep up.

In 2023, the big 4 spent $145 billion.
In 2024, the big 4 spent $230 billion.
In 2025, the big 4 spent $410 billion.
In 2026, the big 4 are projected to spend $725 billion.
in 2027?  $920 billion.
In 2028?  $1.08 trillion.
In 2029?  $1.22 trillion.

Now, I don’t believe these numbers.  At all.

But in them is an interesting nugget.  If you look not at the spend, but the rate of increase in the spend, it goes down starting in 2027.  You can do the math.  The foot is coming off of the accelerator.

In reality, these projections are already bogus.

The implied new capacity of electric power required for this nonsense proves it:
in 2025, 37GW
in 2026, 66GW
in 2027, 84GW
in 2028, 98GW
in 2029, 111GW.

Hahahahahhahahahaha!

Not happening.  Marty will never get back to 1985!

How does A.I. make sweaters?  On the Interknit.

New electrical generation and transmission often takes 4-10 years to come online.  If Nvidia® is making their chips, the place they’ll have to go is a warehouse center on a pallet, not a data center, since current projections show a 30GW-60GW gap already in 2027.

111 GW in 3 years?  This is not happening.

And it’s even worse.  Elon’s big data center running old Nvidia® chips, and not even the new extra-spicey chips?  He’s renting that one out.  Yeah, SpaceX® is an A.I. company, but apparently, they don’t need the whole place.  But we need to spend nearly a trillion this year to make places like the one Elon is renting out.

Hmm.

If that was it, we could all just sit back with popcorn and watch the whole thing catch fire.  But that’s not it.  By shoving over a trillion dollars in spend and probably $2 trillion more in orders for concrete and steel and Transformers© and Autobots® the economy has been horribly distorted.

Don’t worry, they say.  This is all funded from private credit and equity.  So what if Nvidia© drops back into the tres comma club after being in the quatro comma club.  What’s a few trillion between friends?  A.I. is soaking up all the money in the country.

But wait!  Private credit is being bundled up into batches and sold into pension plans.  It’s investment grade, just like those CDO mortgages.  Remember those and how well all that went back in 2008?  This is innovation.  Besides, 401ks already all in.  A.I. and tech stocks are already more than half of the S&P 500, probably 20% more than back before Dotcom.

One of my commenters said my posts were medium-rare.  Well, what he actually said was “They’re not well done.”

A.I.?  Your economy is soaking in it!  The aptly named Larry Fink noted that the funding for A.I. is coming from “your savings accounts and pension accounts.”  He’s betting $10 trillion in the next decade will be spent on this.

But, as amazing as that sounds, that’s not everything.  A.I. is fluffing up the profits of nearly every other business in the country.  My laptop is more expensive because of this.  Electricity is more expensive because of this.  Natural gas is more expensive because of this.  Gasoline?  Yup.  Those jobsite gennies don’t run on SpaceX® stock.

A.I. has infected everything.  Hey, don’t have a frown.  OpenAI® lost only $38.5 billion in 2025.  That’s the sort of performance I want to bet the entire economy on.  Oh, and OpenAI© just barely missed their ad revenue target by 90%.

It’s got a comfy feeling.  Especially when a six-year-old Chinese kid shows up with a free and open-weight A.I. model that’s nearly as good as the top-line A.I. models.  It’s called Kimi K3 and I could run it in my house with a few Apple® machines.

Comfy, right?

I mean, it’s comfy if you’re Sam Altman who has a bunker to protect him from people with missing pensions and plentiful pitchforks.  I mean, a 3-d printer can print a pitchfork, right?

“You can say hate, can’t you?  I thought you could.”

We got off “easy” from the Dotcom bubble because it was based on equity.  Pets.com® just imploded, and people lost a few bucks in the market.  Painful, but it didn’t really strike at the core of the economy, and it left us with a batch of fiber optics that we’re still using and still (at least in some places) haven’t maxed out.  The Dotcom Bubble was going out on a weekend bender when your wallet was flush with cash and being broke on Monday morning.

This is more like the Great Recession, which also used housing prices to creep into every activity, but also was focused on using debt to fuel the party.  This was going out on a weekend bender and waking up to find out that you’d maxed out your credit cards on Charity.  Not UNICEF®, no, the stripper, Charity.  And that she might be pregnant.

And that she gave you herpes.

Unpleasant, but when we could just borrow again, we could get through the 2010s, plus I think they’ve got some sort of pill that controls outbreaks.

Now?  It’s probably both of those put together.  And while the data centers might be useful to train up yet a newer A.I. with more parameters, the data centers won’t be needed to run the models.  I can run a top-of-the-line A.I. in the basement of my house for a modest investment and a few kW.

With all the race swapping Disney® is doing now, the lead character from Beauty and the Beast will now be a Mexican, Taco Belle.

Not GW, kW.  That I could have running in a week, for about $40,000, all while Larry Ellison is sacrificing virgins during the Blood Moon© to help keep the critical path of the construction schedule from slipping.  You can bet that if this is real, they’ll make it illegal.

It’s going to break.  When?

2026?  2027?

How bad?

Best case, the economy contracts 1% or 2.5%.
Base case, the economy contracts 2.5% to 5%.
Run and hide case, the economy contracts 5% to 8% to . . . ?

I asked my doctor why he uses the little rubber hammer.  “Oh, I get a kick out of it.”

Who loses, besides us?

Well, Jensen Huang might have to start drinking Boone’s Farm© instead of champers.  Larry Fink might have to skip a dip in his money bath.  Elon Musk might have to take his 47 kids to Denny’s©.  I kid.  Nothing will change for these guys.

And that long, straight, flat road I was talking about?  It might just turn into a roller coaster once the foot comes off the accelerator.  Here’s hoping that you’re tall enough for this ride, because Charity is probably going to want her back payments.