John J. Hardy, a seasoned Macro Strategist, explores the bearish outlook for the US dollar, emphasizing the urgent need for the US government to streamline its fiscal policies. He highlights the challenges facing major tech firms, particularly Amazon's heavy cloud investments, amid capacity constraints reminiscent of past tech bubbles. Hardy also discusses the implications of current economic trends on corporate earnings and the potential recession risks, all while addressing the competitive landscape of AI investments.
Major tech companies, including Amazon, are drastically increasing capital expenditures in AI, raising concerns over profitability amid historical overexpansion risks.
The U.S. dollar may weaken due to potential recessionary pressures influenced by fiscal constraints and key economic data releases.
Deep dives
CapEx and AI Investment Trends
Major tech companies are significantly ramping up their capital expenditures (CapEx) on artificial intelligence (AI), with projections showing growth from $150 billion in 2023 to potentially $320 billion by next year. Amazon, for instance, announced a substantial $100 billion investment in AI, highlighting their commitment to expanding their cloud services through Amazon Web Services (AWS). However, there's a prevailing concern about the risks associated with such heavy investments and the profitability of these ventures. Past parallels are drawn to overexpansion during historical tech and infrastructure booms, suggesting that while AI holds transformative potential, the returns on current investments may not be guaranteed, leading investors to question sustainability.
Comparative Growth in Cloud Services
Despite facing capacity constraints, Amazon's AWS reported a strong 19% growth for four consecutive quarters, positioning it favorably against competitors like Microsoft and Alphabet. While Amazon's growth rate is steadier, concerns arise due to the slower pace relative to its rivals, indicating potential limitations in scaling operations amid high demand. The discussion highlights the need for effective monetization strategies to justify the massive investments and maintain competitive advantage in the cloud market. This situation puts pressure on Amazon to optimize its operations while navigating investor skepticism regarding profitability prospects.
Market Trends and Economic Predictions
The podcast discusses current market dynamics, suggesting that the dollar may weaken as U.S. economic conditions indicate a potential recession propelled by fiscal constraints. Proposed measures by the Trump administration aim to control U.S. debt and deficit trajectories, which could significantly shape macroeconomic stability and influence bond market responses. Additionally, there’s a focus on the importance of upcoming economic data releases, such as U.S. retail sales and inflation figures, which will be critical for assessing market trends. The sentiment indicates that both fiscal policies and external geopolitical developments will play pivotal roles in shaping the financial landscape going forward.
Today, we round up Amazon.com's results and the refrain we are hearing from them that rhymes with Meta, Microsoft and Alphabet's complaints on capacity constraints and the need for massive further capital expenditures to build out data centers. And that being the case, how to position the DeepSeek news? Also on this podcast, Macro Strategist John J. Hardy lays out the US dollar bearish case as the US government will find that its chief priority is getting its fiscal house in order. Also on today's call is Jacob Falkencrone, Global Head of Investment Strategy.
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