đđŒ Hello friends,
Greetings from Saratoga Springs, NY. Letâs enjoy a leisurely Sunday Drive around the Internet.
đ¶ Vibin'
Sometimes the proof of concept is every bit as good as an idea needs to be. I love the back story for this weekâs Vibe.
Norah Jones sent a demo to Sony Records and they loved it so much they signed her to a recording contract immediately. She couldnât wait to get into the studio to âprofessionallyâ record the songs on the demo. But the studio said, âNope. No way. Weâre releasing this song as is.â The rest is history.
This week Iâm vibinâ to Donât Know Why by Norah Jones, by far her biggest hit. The song you hear is what the record label released - the actual demo version she recorded herself.
Norah will be performing on June 30th at the Saratoga Performing Arts Center as a featured act at the Saratoga Jazz Festival in Saratoga Springs, NY.
đ Â Quote of the Weekâ
âWe are in the business of making mistakes. Winners make small mistakes; losers make big mistakes.â
â Ned Davis
đ Â Charts of the Week
The Charts this week are drawn from an interesting piece on market concentration by Michael Mauboussin of Morgan Stanley. This is an important topic and one we discussed in last weekâs Sunday Drive.
Yes, the U.S. stock market is quite concentrated by historical standards, but compared to other global markets, not particularly so.
Letâs talk a little bit about how we got here and where the AI bubble may take us in the coming months.
According to research from Empirical Research Partners, the basket of AI related stocks currently trades at roughly 1.4x the marketâs forward P/E multiple. Thatâs essentially in line with the relative multiple at which theyâve traded over the last few years, despite their significant outperformance.
So, unlike prior bubbles, the current period of outperformance of the biggest names hasnât really come from multiple expansion but rather outsized earnings growth.
Again, according to Empirical, estimates for Nvidiaâs 2026 data center revenues will total more than 10% of market wide capital spending! This is in the same ballpark as IBMâs share of capital spending at the peak of the Mainframe era in the late 1960s, and Cisco Systems, Lucent, and Nortelâs combined share of capital spending at the peak of the Internet bubble in the early 2000âs.
Regardless of the long term benefits of AI on economy wide productivity, of which I believe there will be many, the current rate of spending seems unsustainable to me.
Iâm not forecasting an imminent end to the AI capital spending cycle by any means. What I am saying is that I believe weâre likely in the latter innings of this cycle. Itâs increasingly important to watch for warning signs for a slowdown in that spending which will lead to significant weakness in the names that have performed the best in recent years.
đ Interesting Drive-By's
đ€ Software is Why Nvidia Will Not Become Cisco - from Kevin Xu [$Link]
Note: A counter argument to the comments above. $Paywall for full article.
đĄ LLMâs Turn Every Question Into an Answer - from Dan Shipper [Link]
đ° Visualizing the Training Costs of AI Models Over Time from The Visual Capitalist [Link]
đ The Age of the Sovereign Creator - from Hamish McKinzie [Link]
đ€ I found this and thought it was super cool (in a math nerd sorta way). So⊠I did what a good analyst would do and checked it out for myself. According to Microsoft Excel, the product is 12,345,678,987,654,300. However, according to Wolfram|Alpha, the below figure is correct. đ€·đŒââïž
đđŒ Parting Thought
If you have any cool articles or ideas that might be interesting for future Sunday Drive-by's, please send them along or tweet 'em (X âem?) at me.
Please note that the content in The Sunday Drive is intended for informational purposes only, and is in no way intended to be financial, legal, tax, marital, or even cooking advice. Consult your own professionals as needed. The views expressed in The Sunday Drive are mine alone, and are not necessarily the views of Investment Research Partners or Cache Financials.
âI hope you have a relaxing weekend and a great week ahead. See you next Sunday...
Your faithful financial provocateur,
-Mikeâ
If you enjoy the Sunday Drive, I'd be honored if you'd share it with others.ââ
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