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Good Friday Morning! I hope everyone survives the brutal winter storm rolling into the eastern half of the country. It seems like no matter what forecast I look at, it’s either a historic amount of snow or ice is set to get dumped on the country. I hope everyone stays dry and warm.
If needed, you could follow the L.A. Rams players’ lead and put cayenne pepper in your socks to keep your feet warm. This is a real thing they did to stay warm during a frigid playoff game. They all claimed it worked. I have no plans to test this, but it’s an option for the cold-natured.
This week, I’m going to share my outlook on AI for the year. There’s been a shift in how the major companies have gone from creating an ecosystem to grow together to open competition. It’ll impact everything – links to follow.
Quick Hits:
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Where you can find me this week
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Trump’s Iran Warning Isn’t a Bluff — Iran Should Know That by Now – Conservative Institute
To The American Church: Wake Up – Conservative Institute
Minneapolis Doesn’t Need Resistance — It Needs Rule of Law – Conservative Institute
The AI Wars Shift In 2026
For the last few years, as I’ve written about the expansion of AI, one of the things I’ve consistently pointed to is how it is blowing up the size of BigTech companies. NVIDIA, for example, went from a computer graphics card manufacturer to the world’s most important chip creator for AI infrastructure. The “Mag7” group of companies all exploded together into new heights because everyone was trying to get in on the AI craze.
What is changing now is that the AI moment is shifting from early optimism to hard capitalist competition. When one company gets a decisive victory, it starts hurting the others.
Kelly Evens at CNBC noted that at its peak, the Magnificent 7 stocks had a combined $20 trillion in valuation. That’s as much as the EU, and up nearly $18 trillion from where they were together in 2015. It’s an astonishing rise. And we’ve seen several of them climb above $4 trillion in valuation each in the past 12 months.
That rise together is ending, however. Kelly Evens noted in her newsletter:
The rise of Google has come thanks to Gemini, and at the expense of ChatGPT. That has hurt Microsoft, ChatGPT’s early backer, which has lost $700 billion in market cap since its peak last summer. And its partner Oracle, which has lost nearly $500 billion of value since September. ($MSFT acts like a big miss on guide is coming…$ORCL too, one trader messaged me yesterday.)
“Our ‘Game of Thrones’ thesis is working, so far,” wrote Yardeni Research over the weekend. “Until late last year,” the firm explained, “the Magnificent 7 operated as seven independent kingdoms protected by large moats. Each prospered with its own unique monopoly. However, the AI arms race has upended that peaceful coexistence by greatly increasing competition among them.”
In other words, AI has changed the Mag 7 trade entirely. No longer do these companies form a “symbiotic ecosystem” where each has carved out a profitable lane. Now everyone is competing to generate “answers,” including against new entrants like Anthropic and OpenAI, while paying as little as possible for the compute, which pits companies like Alphabet (with their TPUs) and Nvidia (with their GPUs) against each other for the first time.
OpenAI announced this week that it was going to push into ads for its primary product: ChatGPT. The free versions of it will have ads. They claimed all kinds of caveats, but the point is simple: OpenAI is in dire need of cash and has to find ways to make money beyond just fundraising like it’s been doing.
The shocking thing is that OpenAI, which had been the market leader for so long, likely isn’t right now. Google, the company that had languished for so long, has finally created a model that works in Gemini, and people are flocking to it in droves.
It’s also becoming harder to roll out updates to these models. Each new iteration is progressively harder to train and build, which means these companies have to figure out ways to survive between updates when other companies are releasing new updates, too.
Why does all this matter? As I’ve pointed out in the past, a large portion of our GDP growth right now is being driven by AI expansion. For the last few years, the big stocks to watch have been the chipmakers like Nvidia. That’s shifted recently, with companies that make memory for AI systems soaring.
SanDisk alone is up 1,100% (and growing) since last year. AI models are having to create more memory space because users want these models to be able to remember more from past interactions. That’s putting significant strain on the memory market as products are getting sucked up.
On a large macro level, the expansion of AI is leading to two things. First, wildly expansive GDP growth. The Commerce Department reported this week that Q3 of last year had strong 4.4% growth, and early looks at this year suggest a continuing strong growth.
The same can’t be said about the jobs market. Unemployment has slowly edged up in recent months, as job growth has effectively flatlined. That’s an optimistic outlook, with recent months only showing around 50k in jobs growth, while October of last year was revised down to -173,000 jobs lost.
As if on cue this week, Amazon announced a new round of corporate layoffs targeted right at the people who can be automated out with AI. The big banks like JP Morgan and Bank of America are not laying people off, but they aren’t backfilling positions as people quit/retire. The layoffs are the loud part of AI; the quiet part is happening, too.
Eventually, I think the AI optimists will be correct: AI will create new jobs. AI is an amazing tool for creatives, in particular. You can create anything you can imagine just by working with AI tools for a little bit.
But in the short term, the AI doomers are also correct: AI is eating up jobs. I don’t care what any official report says against this point. I’ve seen far too much on the ground level to believe otherwise. Employees aren’t stupid, either. A lot of white-collar employees correctly believe AI is out to get their jobs.
The big shift I see ahead for this year: AI tools/applications are going to finally catch up with AI technology. Most of the tools built around AI have struggled to keep up with rapid model expansion. If that slows a little bit, then the tools will be able to catch up and get significantly better.
What we’re witnessing is the wholesale reshaping of the entire economy around artificial intelligence. I’ve written in the past that this is getting the cash and effort that we’d normally see in a war economy setting. The start of this decade was defined by COVID and all the unrest from that. The end of this decade will be defined by an economy redefined by AI, from top to bottom.
We’ve been trying to quantify the benefits over at The Conservative Institute, and the best description we have is that this is a once-in-a-lifetime, or even historical moment: AI is reshaping everything on earth, and we’re on the bleeding edge of it right now. Figuring out how capitalize on that advantage will define the next several years.
Links of the week
Democrats and the Siren Call of Culture Denialism
How Pro-Immigrant Activism Turned Dangerous
Gavin Newsom’s record is a problem
Trump’s Greenland Gambit Has Broken Brains Across Washington
What is a woman? Democrats still won’t say
New govs expose ‘moderate’ Democrats’ true colors
X/Twitter Thread(s) of the week
Media hoax about a 5-year-old being arrested by ICE blows up.
Satire of the week
Medieval Scribe Keeps Forgetting ‘Whence/Whither’ Rule
Trump Disguises Himself As Muslim Migrant So Europe Will Let Him Invade Greenland
Ms. Rachel Apologizes For Accidentally Spray-Painting ‘Go Away Jews’ On A Synagogue
Ubisoft Stepping Away from Video Games to Focus On Laying Employees Off
Brigitte Macron Snapped Making Cut-Throat Gesture As Husband Asked About Sunglasses