- Meta (META) announced it would be launching a cloud service to rent out its surplus AI infrastructure.
- Someone leaked that OpenAI engineers told colleagues internally in June that they’d found a software-only optimization that cuts inference costs by more than 50% on certain models.
Regarding #1, META has been one of, if not THE single biggest player in the AI buildout. In the last three years, META CEO Mark Zuckerberg:
- Spent roughly a quarter TRILLION dollars on META’s AI buildout.
- Poached numerous AI experts from other tech firms, offering compensation packages of eight or even nine figures.
- Made its largest ever deal ($14 billion) to bring Alexandr Wang over from Scale AI to lead its Superintelligence Labs effort.
In simple terms, META has been extremely aggressive in its AI buildout efforts. In this context, the fact that META is now stating that it has surplus AI infrastructure suggests the company has overestimated the actual demand for its AI services. Given how important META has been as an AI hyperscaler, this has very negative implications for AI demand as a whole.
AI-related companies, particularly those involved in infrastructure (Coreweave, Nebius, Micron Technology, Marvell Technology, etc.) collapsed 5%-10% in a single day. This is one of the big issues with hot money/momentum plays: the momentum goes both ways.
Which brings us to the second negative AI-related catalyst last week…the leak from OpenAI’s internal discussions concerning inference costs.
Inference is the term used to describe the cost of answering an AI query. If OpenAI’s engineers have found a software solution that reduces this cost by 50%, then it means that OpenAI (and other AI-related companies) won’t need nearly as much compute (chips, infrastructure, etc.) as investors believed.
Thus, the AI trade was hit by two major issues last week. One (META) suggested that there is an oversupply of AI-related infrastructure while the other (OpenAI) suggested that there might in fact be a shortage of demand for AI-related infrastructure.
Oversupply + less demand = a bearish outlook.
The big question for investors now is whether these are in fact just hiccups in the AI revolution, or if they signal that the AI buildout has “overshot the mark” and it’s time to get out.
The MAG-7 companies, all of which are major players in the AI-buildout, remain above their 8-day exponential moving average as well as their 21-EMA. Until MAGS breaks below either of these, the trend is UP, not matter how much “DOOM AND GLOOM” you read about AI.
