After the AI Spending Bust
Gio@gio
The idea
I think AI data center spending has run way ahead of itself and will get cut hard, echoing the telecom and fiber bust of 2001. Since shorting isn't an option here, I'm positioned for the aftermath instead: defensive staples, Treasuries and gold as the core ballast, a slice of cheap value stocks that worked after 2000, and a smaller stake in software companies that should benefit once computing gets cheap again, kept small since those stocks fell alongside chips before recovering.
What will be bought
- Consumers continue buying everyday products like toothpaste, beverages, and pharmaceuticals regardless of technology spending cycles or economic slowdowns. · Procter & GambleIt manufactures household essentials that consumers purchase consistently regardless of technology spending levels or economic conditions., Johnson & JohnsonIt produces pharmaceuticals and medical devices that patients require independent of data center construction cycles or technology sector performance., Coca-ColaIt sells beverages that consumers buy consistently regardless of artificial intelligence spending trends, making it a refuge during technology downturns., MerckPharmaceutical sales depend on disease prevalence and patient demand rather than data center investment or technology sector cycles., WalmartIt benefits when economic weakness prompts consumers to trade down from more expensive retailers to discount stores., PepsiCoIt sells snacks and beverages that remain steady consumer purchases during economic slowdowns and technology spending cuts.30%
- Long-term Treasury bonds and gold typically gain value when investors shift away from stocks and the Federal Reserve cuts interest rates. · iShares 20+ Year Treasury Bond ETFLong-term Treasury bonds tend to rise in price when the Federal Reserve cuts rates during market downturns and investors seek safer assets., SPDR Gold SharesGold typically preserves value during market crashes and currency uncertainty when central banks lower interest rates., iShares 7-10 Year Treasury Bond ETFIntermediate-term Treasury bonds gain when economic growth slows and rates decline, offering more stability than longer-duration bonds.22%
- Cheap, unglamorous stocks performed well for years after the technology crash while expensive growth stocks fell. · Berkshire HathawayIt maintained substantial cash reserves through the dot-com bubble and capitalized on depressed valuations afterward, positioning itself to benefit from market dislocations., Vanguard Value ETFIt owns hundreds of large companies trading at low multiples, the type that outperformed during the years following the technology bubble., Avantis U.S. Small Cap Value ETFIt holds small companies trading cheaply, which were among the best performers in the early years after the last technology crash., Exxon MobilIt is an established energy business that generates cash and pays dividends, characteristics that helped traditional companies during the technology downturn, though power demand for data centers could constrain oil and gas prices.20%
- Software companies can expand margins when surplus data center capacity drives down the cost of computing power needed to run their services. · SalesforceIt can deliver artificial intelligence tools to customers at lower cost when computing capacity becomes abundant and affordable following a data center downturn., ServiceNowIt runs computing infrastructure for enterprise software, so abundant and cheaper hardware after a spending bust would improve operating margins., AdobeIt pays to operate generative AI features in creative software, so a glut of inexpensive computing capacity would lower the cost of those services., IntuitIt operates AI tools inside tax and accounting software for millions of users, so cheaper computing infrastructure would reduce the cost of running those features.16%
- Cash12%