🤖🧩 AI Causing Next Chip Shortage
Happy Wednesday all,
In today’s YouTube video, we go in-depth on the controversial topic of Should you Rent or Buy a Home? With interest rates so high in 2023, what’s the breakeven point where homeownership makes sense and is renting always a bad thing? Check out the channel to find out.
Also, we added a fancy custom outro that I’m very proud of… I mean, how sick is this? If you do check out our video today, make sure to drop a comment and show it some love :)
Enjoy this week’s Hump Days!
- Humphrey, Rickie & Tim
The Weekly Brief
U.S. House Poised to Vote on Urgently Needed Debt Ceiling Suspension (Reuters)
The deal to lift the $31.4T debt ceiling brokered by President Biden and Speaker McCarthy advances to the full House of Representatives for debate and an expected vote on passage today (Wednesday). If the vote passes through the Republican majority House (222-213), it would send the bill to the Senate, which needs approval before June 5. Biden and McCarthy predicted they would get enough votes to pass the bill into law before the deadline.
Why Does It Matter?
While McCarthy and Biden both expect the bill to pass, the deal will need support from both sides as members of both parties object to significant parts of the bill. The vote is scheduled to take place around 8:30PM EST.
German Economy Entered Recession as Inflation Hurt Consumers (Reuters)
Germany’s GDP fell by 0.3% in Q1 2023, following a 0.5% decline in Q4 2022, meaning that Germany was in a recession in early 2023 after two consecutive quarters of declining GDP. Household spending took a hit due to immense inflation, down 1.2% quarter on quarter after adjustments. Government spending decreased significantly by 4.9% in the quarter.
Why Does It Matter?
Germany is the 4th largest economy in the world behind the U.S., China, and Japan. An official recession is big news on the world scale, however, the German Bundesbank expects the economy to rebound in Q2.
Twitter is Now Worth Just 33% of Elon Musk’s Purchase Price, Fidelity Says (Bloomberg)
According to Fidelity, Musk’s investment in Twitter is now worth $8.8B after spending more than $25B to acquire 79% of the company last year. Musk has acknowledged that he overpaid for Twitter, recently saying that Twitter is now worth less than half of what he paid for it. Advertising revenue is down 50%, and Twitter Blue subscriptions have failed to take off.
Why Does It Matter?
Musk's erratic decision making and challenges with moderating content led to advertisers fleeing the social network. Musk has since said that advertisers are returning but Twitter's attempt to recoup the lost revenue by selling Twitter Blue subscriptions hasn't taken off yet with no signs that it will anytime soon. At the end of March, less that 1% of Twitter's monthly users had signed up.
Hump Days Scoop
Nvidia was briefly in elite company after sporting a $1T market value on Tuesday after investors loaded up big on the chipmaker causing the stock to shoot up 24% after Q1 earnings, making it one of the biggest winners of the AI boom. Only four other American companies currently have a market cap of more than $1T: Apple, Alphabet, Microsoft, and Amazon.
AI has taken the market by storm in a matter of a few months, so this week, we discuss the latest AI boom, how chipmakers stand to make a fortune, and what to expect in the future.
In tomorrow’s edition of The Bottom Line, we do a deep dive into NVDA so if that sounds interesting to you, consider subscribing!
Who are the big players that stand the most to gain with the AI boom?
AI is poised to disrupt almost every aspect of our lives and, for some, it has already disrupted many functions of our everyday living. AI is still early in its life cycle, and experts believe there is still room to move as the AI boom continues to pick up. Here are some big players that stand a lot to gain if the trend continues.
Nvidia (NVDA 0.00%↑)
NVDA is currently the industry leader in advanced GPUs used in almost all AI systems. Its stock price has since seen more than +240% growth since U.S./China conflicts brought it to a low back in October 2022. The chipmaker is showing no sign of slowing down as it continues to supply chips to AI companies looking to capitalize on the boom.
AMD (AMD 0.00%↑)
AMD is a direct competitor of NVDA and also produces high-performance computing and graphics solutions used in AI applications. If the AI boom is the real deal, a rising tide should lift all boats and AMD will likely capture some share of the exploding market (especially as shortages become more prevalent; more on that below).
Taiwan Semiconductor Manufacturing (TSM 0.00%↑)
TSM is the world’s largest semiconductor manufacturer, producing advanced chips designed by American tech companies, many of which are involved in AI.
Meta (META 0.00%↑)
Meta has since shifted its focus from the metaverse to AI and has begun work on its own AI large language model (LLM) trained on text data and will be able to generate human-like responses to text prompts. The stock is up more than 100% in 2023 showing that investors are buying up the AI move, unlike the metaverse shift.
Microsoft (MSFT 0.00%↑)
Microsoft alone has invested $13B into OpenAI, the company behind ChatGPT, which is now valued at $29B. The stock has lifted since Microsoft announced its intention to incorporate GPT-4 into the Edge browser and Bing search engine.
Is there going to be another chip shortage?
If the AI boom is the gold rush of 1848, chipmakers like Nvidia are like Levi Strauss selling shovels to those looking to dig for gold - only, they’re running out of shovels to sell. Companies looking to get in on AI-driven businesses are in an arms race to lock down the computing power required.
As it stands, Nvidia makes almost all of the graphics cards (GPUs) used in AI functions but the explosion in popularity has caused demand to significantly outpace the supply. The advanced GPUs are crucial for companies training large AI models, and without them, the AI systems run much slower. Sam Altman during his congressional hearing on AI even said it would be better if fewer people used ChatGPT because of the processor bottleneck.
AI founders expect the shortage to run into at least next year.
Chart of the Week
The recent agreement between President Joe Biden and House Speaker Kevin McCarthy to raise the debt limit could present new challenges to the already strained U.S. economy. The deal, pending congressional approval, could help avert a financial crisis caused by a potential default on payments. However, it could also risk instigating an economic downturn due to the cap it places on government spending.
As seen in the chart above, federal spending has been vital in supporting the U.S. economy. The new limit on government expenditure could escalate this risk, adding more pressure to an economy already suffering from the highest interest rates in decades and decreased credit access.
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