Blain’s Morning Porridge Oct 29th 2025 – How much will AI cost, and how much can we afford?
“The greatest trick the devil ever pulled was convincing the world he didn’t exist..”
The AI Bubble floats on a wave of Confidence – confidence the global economy needs it, the USA will lead it, the hyperscalers and AI firms can afford it, energy is not an issues, and competition from China, tech evolution and quantum are not future problems. All the market sees is opportunity. We’ve been here before.
There is a marvellous Scots word – Gallus. It describes someone with a certain amount of swagger, who is bold, convincing, and above all confident. Confidence is the greatest bluff in the book. Confidence is contagious. Confidence persuades where reason will not. I reckon a surfeit of over-confidence is at the root of every single major market correction and collapse.
Despite all the concern, uncertainty and a growing sense of instability some of us feel in markets, and especially AI, confidence still defines the current market mood. Damn the torpedoes.. confidence is everything:
Donald Trump is a gallus man – perhaps because his mother is Scots! His confidence is driving the US economy. Despite all the noise, the US economy has not collapsed in a sluff of the economic logic folk like myself confidently predicted from tariffs, inflation, trade, supply lines, etc. Earlier this week he inked a deal with Japan, adding to the trillions of dollars of foreign investment promises already heading America’s way. Trump tell us he’s going to personally allocate that money – which is news to countries that made vague acknowledgements about exploring how to do more with America in return for Trump rowing back their respective tariff levels. They were just humouring him…
Other commentators describe Trump’s Middle East and current Asian Tour as a Mafiosi Don visiting clients for the annual shakedown for his protection racket. Harsh, but not unfair….
It all sounds fantastic, trillions of foreign investments creating jobs and boosting the US economy, while all the tariff money foreign exporters are paying continues to pay down the national debt! What’s not to like about how Trump has transformed the economy and the rest of the world gets to pay for it?
But… Let’s see if any of that promised investment ever materialises. In the meantime, bang that drum a little harder, because its giving America confidence… Were that confidence to evaporate.. what then?
The other big confidence issue for the economy is AI – just how big and affordable is it?
Big news yesterday was Sam Altman of Open AI turning the altruistic not-for-profit into potentially the most valuable for profit IPO of all time… The new board structure looks… complex, but he is also a gallus man, (even though he does not look the most impressive of entreprenuers.. (It is just me that thinks he looks… hunted?))
On the back of Altman’s wheeling and dealing, Microsoft has clambered onto the top rung with a $4 trillion market cap as its $13 bln of investment translates into a stake of 27%, valued at $137 bln! The thing I spotted is how investors like Andreesen, Sequoia were previously only entitled to a share of the profits (which Open-AI isn’t expected to make for years). Now they will be able to sell their stakes on the basis of what the firm might be worth. Is it time for them to find the next greater fool? (Clue – usually retail!)
As Nvidia approaches $5 trillion and looks to sell more and more chips into the ravenous maw of the AI bubble… and more and more data centres drink more and more water, and a whole new fleet of nuclear reactors and reservoirs are needed… it’s a feeding frenzy of build-out infrastructure spending across the USA. Everyone says buy, buy, buy…. Especially the picks and shovels of the AI Klondike!
I am assured by tech analysts that there is no need to worry about how Nvidia sits like the fairy on top of the enormous magical money tree of circular cash flows funding the purchase of more and more Nvidia chips. Neither should I worry that Masayoshi Son of Softbank is in the Project Stargate to finance the $500bln buildout alongside Oracle borrowing money to build data-centres.… to provide OpenAI will lots and lots of new infrastructure.. what’s not to like? (Er… why is We-Work flashing in front of me?)
The secret sauce of the AI bubble is confidence. Confidence that it’s all going to happen. After all, across America firms are successful trimming costs and slashing overheads on the back of it. The biggest white-collar firms have gleefully closed-down graduate hiring because AI promises to do it better. Amazon announced a slew of white-collar job cuts yesterday because AI will mean fewer staff can work better. A firm that helped students “study” (ie – write essays) just sacked all its academic orientated staff and replaced them with… well you know what…
Confidence is everything… until suddenly it is not..
Across America are signs of forgotten industrial pipedreams. Tumble weed blowing down the streets of long abandoned mining towns in the high deserts. Overgrown canals on the east coast. And all over the nation, lines of differently shaded tarmac on the highways mark where long-expired dark-fibre optic cables were once hopefully laid. The Fibre dream died in 2020 when investors discovered you didn’t actually need so many new cables – new tech allowed much more data to be streamed down existing cables making billions of miles of new cable obsolete.
Most of the new fibre optic networks were never lit. They have mouldered underground. The costs were horrendous and inevitable as firms drowned in debt as data transmission prices plummeted. The sudden realisation of that busted dream triggered the rockslide that precipitated the whole Dot.com edifice crashing down.
How are the US tech giants proposing to fund the build out of Tech AI? Massive amounts of debt! Citicorp reckons the cost of AI data centres and compute will be around $3 trillion this decade – other estimates go up to $6 trillion, and that’s not including new energy and water plant and infrastructure.
A $4 trillion market-cap corporate doesn’t have $4 trillion to go spend. Funding the proposed build out will have to come from raising capital in the form of equity (which is dilutive) or leverage – new debt. The current debt outstanding from investment-grade US corporates is around $5.5 trillion… That means a significant amount of new debt supply when the investment-grade hyperscalers like Meta, MS, Amazon and Oracle start spending. (Oh, how I wish I was still a Debt Capital Markets originator!)
There is another $6 trillion odd of other corporate public debt, plus some $3 trillion of private debt outstanding in the US debt markets. Assume lots of other sub-investment grades are going to borrow to fund their compute and chips…
The point is the US debt market will see its demand/supply equation change. At present corporate spreads are remarkably tight – but that may change. The amount of cash the investment grade hyperscalers seek to raise will compete (to some extent) with the US Treasury market. (Some folk already think Apple is a better credit than the US Government!)
Meanwhile, the economy will need to find even more money to build out the new energy and water access data-centres will require…
All the time the Chinese are building their own AI – cheaper to manage and run open-weight SLMs, powered by their abundant renewable energy.
Does it all sound a little wobbly? Some estimates are that 70% of private capital market funding has flowed into AI.. when it pops.. so does that cash..
Out of time and back to the day job…
Bill Blain
CEO – Windshift Capital
Author – The Morning Porridge
Partner – Shard Capital