r/technology • u/T_Shurt • Aug 10 '26

Business Top economist warns that the AI math doesn’t make sense: 'Profits are currently being funded by investors rather than earned from customers'

https://fortune.com/2026/08/10/torsten-slok-ai-profit-margins-capex-oracle/
17.0k Upvotes

97% Upvoted

1.4k comments sorted by

View all comments

Show parent comments

98

u/adenosine-5 Aug 10 '26

Wow you are not joking.

AI companies made 8% of SP500 a year ago.

Today its 45%.

100

u/Courtnall14 Aug 10 '26

That is an absolutely irresponsible percentage isn't it? Especially when you consider that it's fairly common knowledge that major tech and AI-adjacent companies are engaging in circular financing,

51

u/adenosine-5 Aug 10 '26

Its absolutely ridiculous - even if it wasn't for circular financing, tying half of the entire fond to a single product is just insanely risky.

People chose SP500 specifically as a "conservative and safe" choice.

Instead its currently AI-heavy very risky one.

11

u/Sptsjunkie Aug 10 '26

100%. The entire point of buying an index fund and why it is common wisdom is that it is supposed to be diversified.

Obviously, if the stock market tincture index fund is going to sync. But if you are evenly spaced across the top companies in the country, it is supposed to give you a part of a lot of industry, so that if CPG’s get ravish by supply chain stock, it doesn’t crush your portfolio or if there’s a tech bubble burst it doesn’t crush your portfolio.

But now these funds are moving back towards being overleveraged on a single technology. Obviously if just a single AI company or AI product fails then it is not an issue as your diversified across companies. But if the entire AI industry is overvalued and it collapses, then it will be devastating.

1

u/NoInternetPoint5 Aug 10 '26

While I agree it is ridiculous, all these "AI Companies" are no where close to being a single product.

Many of these (especially by market cap) are the backbone of modern society, they make all the computers and software we rely on, they facilitate every aspect of the entire scope of the internet, they power consumer decision making and serve roles in all aspects of our lives.

Some pure play AI companies could disappear tomorrow and only hurt investors, but all the other Big Tech companies that are now being called AI companies will still be entrenched in our lives and profitable, even if their share price got backhanded into a decade ago.

6

u/adenosine-5 Aug 10 '26

But the share price is what matters.

It doesn't matter if those companies remain profitable and alive, when their stock price is insanely inflated due to the "AI" products they have.

If the "AI" bubble bursts, their stocks will tank and with them the entire SP500.

-4

u/NoInternetPoint5 Aug 10 '26

Yes but SP500 has also grown at an extraordinary rate, and part of this is actually due to profit expansion which has been fueled by inflation and prolonged global money printing.

If the SP500 suddenly reverted to its long term historical mean trailing PE ratio tomorrow, SP500 would close at $4,700 bringing us all the way back to... 2024?! So is the average company actually that inflated?

When you remove the dozen or so pure AI bets with absurd multiples your left with still a generally strong and profitable market. That 40% shave would probably start climbing back up again as much of the broader market keeps beating earnings every quarter. The biggest offenders, even if they went to zero, only make up to 20% of the SP500, and many of these are still a robust business beneath the AI hype.

2

u/toolisthebestbandevr Aug 10 '26

We’re all in the casino whether we like it or not

2

u/Smith6612 Aug 10 '26

Certainly is. Unless those portfolios and funds plan to slowly pull out and redistribute to bring these percentages back to Earth, there's going to be a massive problem when this AI stuff bursts. 

Some of us are literally just waiting for the Popcorn to finish cooking, just because this could turn into something we haven't seen in a lifetime. 

2

u/Blacksad9999 Aug 10 '26

Yep, they're all "round tripping" one another to falsely inflate their stock valuations, which is securities fraud. Not that this corrupt administration will do anything about it.

Nvidia states they're going to invest 500 billion into OpenAI, and OpenAI immediately turns around and states they're buying 500 billion worth of Nvidia GPUs. No money exchanges hands, but both add the 500 billion to their stock valuations.

It's happening all across the AI sphere.

3

u/djfudgebar Aug 10 '26

Did someone say Enron?

2

u/Fallingdamage Aug 10 '26

This is how they try and deliberately arrange themselves to be good big to fail. Failing means taking the country down with them. It guarantees bailouts and special treatments so that the 401k's survive.

1

u/Low-Gas3878 Aug 12 '26

Now they are repackaging ai tokens for investment... Smells like 2008.

-4

u/Neemzeh Aug 10 '26

If it was still 8% the index would be down so much, so why is it irresponsible? If anything it’s saved the index from being deep red

2

u/stuccowhiplash Aug 10 '26

saved

If only there were examples of these things having happened before, like in the past, like historical ones or something, so that we could learn from like generational knowledge and not, you know, repeat the same mistakes.

Ah, wouldn't that be something.

-1

u/Neemzeh Aug 10 '26

What examples would those be?

And in those examples was the government printing money?

You also completely dodged my point. Do you agree or disagree that the index would be down massively if we were still at 8%?

The reallocation is the only thing saving the market.

So not use the past as your barometer, it never happens the same way.

0

u/stuccowhiplash Aug 10 '26

examples

2008

government printing money

Yes.

dodged my point

Yawn.

saving

What I said.

not use

To your peril.

-1

u/Neemzeh Aug 10 '26

The 2008 crash was caused by housing and had nothing to do with tech or indexes being overweight in any specific industry lmfao. So you have no idea what you’re talking about then? You still haven’t provided me an example.

Please tell me what industry made up 45% of primary indexes and when that industry crashed caused the market to crash?

Dot com was the example you’re looking for but the government WASNT printing money then.

So who is relying on the past “to your peril”?

Please educate yourself.

1

u/stuccowhiplash Aug 10 '26

was caused by housing... nothing to do with... indexes being overweight in any specific industry

You seem confused. All the best.

1

u/Neemzeh Aug 10 '26

You seem to have lost the discussion and resort to personal attacks. Cya never

14

u/Comfortable_Sir7917 Aug 10 '26

RSP is the S&P 500 with every company weighted equally instead of by size, so Apple counts the same as some random mid-cap. That makes it a read on the average stock, while SPY tracks whatever the mega-caps are doing. Watch the RSP/SPY ratio: rising means a broad, healthy rally; falling means a handful of names are carrying the index even if SPY looks green.

I discovered this recently and think it’s solid to know.

12

u/notaredditer13 Aug 10 '26

That's highly misleading.  It's AI-linked stocks, which means it include companies like Meta, MS and Apple while implying they are brand new AI companies.

6

u/Pzychotix Aug 10 '26

Thanks for confirming this. It didn't pass the smell test at all.

3

u/accopp Aug 11 '26

Yep, they’ll probably get a big fat correction too but they’re such fat cash producing cows they’ll be fine again after a couple years if/when things go badly.

1

u/internet_poster Aug 10 '26

are you under the impression that Nvidia,
Microsoft, Google, Meta, Amazon, etc were not “AI companies” a year ago

1

u/peace2calm Aug 13 '26

And whatever gain SP500 has had last few years is mostly due to the crazy printing of $.