JD Straight Up - 20Jul26 - Capex: Artificial or Intelligent

Capex: Artificial or Intelligent?

Drulard Family Capital Fund

Fortnightly Macro View

JD Straight Up:

S&P 500 at 7500 – flat from 7533 two weeks ago

VIX at 18 – up 9% from 16 two weeks ago

10yr Treasury yielding 4.56% (up 2% from 4.49% two weeks ago)

Agg (US Aggregate Bond Index) at 98.11 – down 1% from 98.56 two weeks ago

Gold at 4015 per oz (down 4% from 4166 two weeks ago)

Silver at 57.14 per ounce (down 9% from 62.50 two weeks ago)

Crude Oil (WTI) at 81 per barrel (up 16% from 68 two weeks ago)

Bitcoin at 64k (flat from 64k two weeks ago)

JPM shares at 342 (up 2% from 337 two weeks ago)

Deutsche Bank shares at 34.88 (down 6% from 36.96 two weeks ago)

Truist shares at 51.64 (up 1% from 51.28 two weeks ago)

Blackstone shares at 123.72 (flat from 123.96 two weeks ago)

Magnificent 7 Index at 432 (up 1% from 426 two weeks ago)

US unemployment: at 208,000 in latest claims – down 3% from 215,000 two weeks ago

EUR at 1.14 USD (flat from 1.14 two weeks ago)

GBP at 1.34 USD (flat from 1.34 two weeks ago)

Macro Environment

US inflation reported at 3.5%, down from 4.2% but still well above 2% central bank target.  EU inflation at 2.9%, down from 3.3%.  War continues in Ukraine and Iran.  Ceasefire persists in Gaza.  Iran and US posture for control of Hormuz.  Energy prices fluctuate with changes in Hormuz status and outlook.  Heightened capex for AI continues at unprecedented rates.  Labs in US and China position for AI leadership.

Macro View

All eyes are on energy and AI and maybe both at the same time or at least one eye on each.  The great bet continues to be whether all the AI capex will be able to pay off with a reasonable return and how and when that payoff will commence and transpire.  In the immediate term, inflationary pressures persist and uncertainty on energy access and prices exacerbate the issue.  The longer term pressure is a fiscal one and whether governments in an AI world can continue to generate enough revenue to service ever-compounding levels of debt.  If revenue is largely delivered through income tax and jobs and incomes come under pressure, perhaps the revenue model needs to be re-examined.

Relevance

Is token consumption really the business model for the labs?  Its as simple as that?  Build models, apply compute, expand, improve, sell tokens to companies, consumers and agents?  That is what is going to drive the trillions of value that is assumed in current capital deployment models?  Or is there something deeper and more creative or ingenious at work?  For example, labs gain critical insight into important industries and improve or assume operation of them.  It is hard to believe that just a simple token consumption model is the way.

Head Scratchers

1 - Will AI ultimately generate more though different jobs than currently exist or will a greater social welfare system or universal basic income (UBI) evolve?  If taxi driving, long haul truck driving, food preparation, and many white color jobs are replaced, are the current holders of those roles re-trained and re-deployed or are they eliminated from the current and historical work and pay system? 

2.  Will future generations look back at this time and laugh at Artificial Intelligence as the greatest oxymoron of all time?  Perhaps not technically oxymoronic, but eminently moronic?

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#47 - 20Jul26