Comment by appreciatorBus
2 days ago
Regardless where demand comes from, it takes time to spin up a hard drive factory, and prices would have to rise enough that, as a producer, you would feel confident that a new hard drive factory will actually pay off. Conversely, if you feel that boom is irrational and temporary, as a producer you’d be quite wary of investing money in a new factory if there was a risk it would be producing into a glut in a few years.
I'll add that the GPU, CPU, storage, and RAM industries crashed in 2022 after a Covid-induced boom.[0]
Everything was cheap. Samsung sold SSDs at a loss that year.
TSMC and other suppliers did not invest as much in cap ex in 2022 and 2023 because of the crash.
Parts of the shortage today can be blamed by those years. Of course ChatGPT also launched in late 2022 and the rest is history.
[0]www.trendforce.com/presscenter/news/20221123-11467.html
I bet the same thing happens when the AI bubble pops.
"but this time is different, it's not a bubble, there's real value there"
Economists use the term “bubble” to describe an asset price that has risen above the level justified by economic fundamentals, as measured by the discounted stream of expected future cash flows that will accrue to the owner of the asset.
I think there's little argument that is happening, the question is more about to what extent is it a bubble.
The entire global software industry is worth less than $1 trillion dollars. Or in other words smaller than the current valuation of just OpenAI + Anthropic.
Planned capital investment this year by the Magnificent 7 alone is $600B. More than 2/3 of the total global software industry. In one year. Good luck buying any computer hardware this year, there will be a shortage of everything, including electricity.
It's a bubble. But when does the music stop?
> The entire global software industry is worth less than $1 trillion dollars
Are you saying "worth" as a shorthand for something like annual profit? If you sort the 2025 data by earnings, you get pretty large numbers quickly: https://en.wikipedia.org/wiki/List_of_largest_technology_com...
That's not how you should measure "worth". In that world, you'd have a P/E ratio of 1. Comparing to a bond, it would be like expecting to get paid the face amount in a single year. Many people are quite happy with 5-10% interest as a risky benchmark, so 10-20 P/E isn't wild. That puts the market cap for tech itself at 10-20T as a reasonable baseline.
Apple, Microsoft, Google are all worth 3-4x the global software industry just for some context.
Is Microsoft 3x more important than OpenAI and Anthropic combined? Personally no. I think the value generated by OpenAI and Anthropic will surpass Microsoft.
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How long did it take for housing to stop skyrocketing?
That's my guess.
Aka: take a seat, it will be a while
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The problem is "markets can stay irrational longer than you can stay solvent". It doesn't matter when the bubble pops if the governments (especially the US') bail those companies out.
The damage is already being done, whether you are a 401k/IRA holder with a position on the S&P 500 way too overweighted by the Mag7&co and their circular dealings, or just needing to buy computer parts way over their market value because some companies are over-leveraging to outcompete you for that hardware (or electricity), or even at a smaller scale by increasing software costs because everything is "AI-powered" now and of course you wouldn't want only "deterministic" software that just works and doesn't have a slop machine integrated.
At this point I agree. A bubble starts when everyone stops calling it a bubble.
If it's a bubble that big it's
1) the only reason any part of the economy is growing at all
2) the only reason US banks aren't bankrupt due to the commercial real estate debacle they got themselves into
In other words, if this is a bubble, if this pops, we're back in the 2008 situation. Where banks will go bankrupt one after the other like dominoes (in the sense that this amount is large enough that large banks will fail their financial obligations). And you can argue as much as you want based on "real" valuation metrics but none of your investments, not even cash dollars or even gold, will come out of that one intact.
Fortunately, there's the counterargument: you know what else is higher than ever? The revenue produced by the software industry. To the point that at the moment you can say, as crazy as it sounds: if revenue of the big software firms keeps growing the way it IS currently growing, this is not enough investment.
In case you're wondering what exactly that means, not enough investment. Think of it like this: you're selling shoes. If you invest too little in new shoes (or whatever resources you need to sell shoes), then you will have to tell customers coming in "sorry, all out of shoes, take your money elsewhere". Currently it's not enough investment. If this growth rate keeps up for 1.5 years, Amazon will have to close the store to anyone who wants more machines, in fact they are turning away large customers right now at Amazon, Google and Microsoft. That's where the "spend more now" madness is coming from. Is it unjustified?
Well, it appears not.
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You act like this wasn't just the same as it has always been.
It's always been cycles of cheap production and then human created demand or catastrophes to reduce supply and increase prices back up again.
https://www.trendforce.com/presscenter/news/20221123-11467.h...
If I remember during a previous GPU shortage (crypto?), Nvidia (and/or TSMC?) basically knew the music would stop and didn't want to be caught with its pants down after making the significant investments necessary to increase production
Not to mention that without enough competition, you can just raise prices, which, uh (gestures at Nvidia GPU price trends...)
Similar thing happened with mask manufacturers during COVID.
They didn't spin up additional mask production b/c they knew the pandemic would eventually pass. They learned this lesson from SARS.
Not maxing out production during spikes (or seasonality) in demand is a key tenet of being a "rational economic actor".
too bad the bicycle industry didn't learn this. They acted like COVID was the new-normal, and it has resulted in many companies disappearing when they learned the hard way that demand for bikes in a pandemic is neither sutainable nor normal.
I believe the TSMC CEO said that in a recent interview. They're aware that their now biggest customer Nvidia has a less broad product portfolio than Apple and the high volumes they buy propably won't last. It's too much of a risk to plan more Fabs based on that.
They are indeed planning for more fabs, in order to meet volumes.
Last week: “TSMC's board approves $45 billion spending package on new fabs”
https://www.tomshardware.com/tech-industry/semiconductors/ts...
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Somewhat ironically the AI boom means Nvidia would've easily made their money back on that investment though and probably even more thoroughly owned the GPGPU space.
But as it is it's not like they made any bad decisions either.
You're talking about how higher prices can motivate higher supply. The parent commenter was talking about how higher prices shift the current point on the demand curve to the right. If hard drives sold for $1 billion per gigabyte, we wouldn't see even AI companies buying as many as they are, and current production would go idle. Even assuming supply is locally inelastic (as it is given no time or space to scale, or given a lack of confidence that scaling is wise), you should be able to find a price point that avoids supply shortages by manipulating demand.
Thus far, we've not found that point.
> it takes time to spin up a hard drive factory
Very good.
The problem with this expectation of usual market behavior is that demand from AI will still be unsatisfied even after buying out the current providers' whole supply, so any new manufacturer entering the market will also prioritize high-paying AI companies above consumers.
Sure - the question is how long they can remain high-paying.
Looks like all the money reserves big companies have been sitting on are gone. Circular money deals are in full swing & now it looks like some companies are now looking for loans.
Not sure how much longer this can go on until it comes crashing down.
Are these factories already running 24/7 that labor can't be added to make more without adding capital infra?
And if they were running 24/7, maybe setting up another factory or line will avoid some of the 24/7 scheduling.
As far as I know, the lithography machines are indeed running 24/7 (barring servicing).
https://www.asml.com/en/products/customer-support