Source: Fortune
Summary
Research Affiliates CEO Chris Brightman argues that the AI arms race has created a new industrial era where companies like Microsoft, Amazon, Alphabet, and Meta are churning equipment at a rapid pace to generate sales. This has led to a surge in AI capex, with spending expected to reach $650 billion this year. However, Brightman contends that the economic life of AI hardware is much shorter than its accounting life, with equipment losing its value over about three years. The hyperscalers are using AI to maintain their dominance in their respective fields, but this spending is not generating significant returns and may harm their overall profitability.
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The numbers tell one story.
Brightman’s report highlights the paradox of the AI arms race, where companies are spending billions on hardware that becomes obsolete in just three years. The hyperscalers are using AI to protect their turf, but this spending is not translating to significant returns. Brightman notes that the equipment’s physical life is longer, but its economic life is shorter due to rapid advancements in computing power. This has led to a situation where the hyperscalers are constantly seeking new “compute” to maintain their capacity for AI, resulting in huge spending that may not create value for shareholders.
The strategy enters a familiar phase: companies prioritizing market dominance over profitability.
Author: Evan Null
