Making Sense of the AI Cycle: Where are We Now?

Recent earnings from Amazon, Meta, Microsoft, and Google revealed surging AI-driven profits, prompting upward revisions to their 2026 capital expenditures from $630 billion to $800 billion, with $1.1 trillion projected for the following year. These hyperscalers, alongside revenue from OpenAI and Anthropic, are funneling cash into AI infrastructure, driving massive gains in related stocks: SanDisk up 40x, Micron 7-8x, Intel and AMD around 4x over the past year. The episode maps this "trillion-dollar waterfall" down the AI stack, explaining how money flows from top-tier revenue to foundational components, helping listeners orient investments amid FOMO and bubble concerns.

Earnings Shift Validates AI Spending

Q1 2026 reports from the four hyperscalers showed AI investments not only boosting revenue and profits but also justifying accelerated CapEx, all funded from cash flows without leverage. This counters bubble fears, as Brad Gerstner noted on CNBC: unlike past hype, AI use cases like those from Anthropic and OpenAI generate billions in annual recurring revenue weekly. Google reclaimed the world's most valuable company spot, powering a flywheel where utility drives payments, sustaining spend as long as AI unlocks value. NVIDIA, once dominant, now sits second at $4 trillion market cap, with money propagating outward.