The Lex newsletter: Putting an end to the AI ​​stock boom

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Roula Khalaf, editor of the FT, picks her favorite stories on this weekly newsletter.

Dear Reader,

It's been a rollercoaster week for artificial intelligence-related stocks. On Wednesday alone, US chip developer Advanced Micro Devices lost greater than $20 billion in market value. Shares of server maker Super Micro fell despite quarterly forecasts beating expectations, resulting in a 25 percent decline last month.

In fact, the conditions are ripe for a correction. The AI ​​stock boom priced in an excessive amount of, too quickly. Analysts' expectations for chip sales remain very optimistic. AMD's forecast of $4 billion in AI chip sales for 2024, for instance, was seen as a disappointment given inflated market expectations.

But the excellent news for chip and AI hardware makers is that tech giants will only spend more on infrastructure upgrades within the near future. Meta increased its forecast for capital spending in 2024 to an estimated $35 billion to $40 billion. Amazon plans to extend capital investment in its data center capability in 2024 after its cloud computing division posted its strongest revenue growth in a 12 months, boosted by strong demand for AI services.

Sales of advanced chips could also receive a brand new boost from Apple. The US technology company said that generative AI is a critical opportunity for it. The implication is apparent: an iPhone is coming with generative AI functions.

Tech firms' profits this 12 months suggest that selling the infrastructure needed to construct artificial intelligence services stays much more lucrative than selling the AI ​​services themselves. The cloud computing divisions of Alphabet and Microsoft outperformed Results of other business areas. Amazon has positioned itself as a platform for several AI models, but additionally offers its own generative AI services to enterprise customers.

What is definite is that the keenness for AI will soon be reflected in increasing electricity demand in data centers world wide. The problem is that data centers require constant power, while renewable energy is volatile. Lex believes that the decarbonization of knowledge centers will shape the green transition. Just have a look at the undeniable fact that Microsoft recently appointed a director of nuclear technologies.

Elsewhere in tech, a U.S. bill signed this month, a part of a package that features aid to Ukraine, means ByteDance, the Chinese owner of TikTok, has until early 2025 to sell the video app to a U.S -Company to sell, otherwise there may be a risk of a ban from the app stores and web providers. The immediate impact of a ban would anger TikTok's 170 million U.S. users, who would relatively create memes in peace. The larger consequence is that the worldwide Internet is becoming increasingly fragmented.

Quick links

Some of the takeaways from this week's Lex column:

• Buyout firm Apollo's long-running pursuit of €1.6 billion industrial certification group Applus has reached a posh regulatory stalemate – a warning of how aggressive acquisition strategies can backfire

• Even Walmart can't crack America's dysfunctional healthcare market – the retailer can be right to chop its losses

• A collapse in electricity prices means cuts for European energy suppliers – the tip of historically high energy prices has come much earlier than expected

• TSB seems an odd fit for BBVA's Spanish takeover – a sale makes more sense

Things I liked this week

President Joe Biden signed a bill last week that could lead on to a nationwide ban on TikTok. The tech billionaires who helped ban TikTok now need to do it Write artificial intelligence rules for Donald Trump – Preparing a proposal to repeal Biden’s AI rules.

Will people proceed to eat Oreo cookies despite appetite-stimulating medications? The CEO of Oreo maker Mondelez sees this very much limited effect of Ozempic.

Finally, an interesting article a couple of middle school's fight against cell phones has led to surprising results. What unfolded at a Connecticut school reflects a broader struggle in education, as some administrators take increasingly drastic measures to limit the reach of a technology that’s each ubiquitous and endlessly distracting. Does social media exacerbate conflicts amongst students?

Enjoy your weekend,

June Yoon