Hi all, Azeem here.
The last two weeks have been chaotic in tech. The Democrats' huge victory upended lots of assumptions. But the news that Jensen Huang has a relationship with a Chinese spy has kicked the upturned cart into a new dimension of chaos. I shared my current thinking with readers of our AI Investment Brief yesterday. I thought EV readers might value the perspective.
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It’s been a truly chaotic two weeks, with the start of a correction in AI companies, followed by the market shock of the Democrats’ predictable mid-term victory, giving the Nasdaq 100 its worst day since March 2020. Now Jensen Huang has added to the hubbub.
I’m digesting it all. Here is my current view, which I hope you will find helpful.
This is a flight to quality, not a collapse. Spending keeps rising. Democrats will make data centers dearer – that favors the hyperscalers. Nvidia will have its wings clipped, and the open-weight camp with it. An Anthropic IPO at a sensible price would steady the sector. The neoclouds are the weak link.
SPENDING
Enterprise spending continues to increase. Anthropic’s growth rate has dropped from 147% a quarter to 45%, and many have read that as a stall. 45% quarterly growth is the pace of the whole AI economy. AI revenue reached $188bn in the twelve months to October and now runs at $345bn a year, 4.2 times its level a year ago. That works out at about 43% a quarter. Anthropic has fallen back in line with the market, and year on year it is still up about 1,000%. The outlier was the 147%, not the 45%.
In our conversations with non-tech companies and the consultancies that service them, we hear that these large firms are slowly figuring out how to get results from AI and intend to spend more next year than they did this year.