The AI Investment Boom

It feels like there’s a big gap in this discussion. The focus is almost entirely on GPU and hardware investment, which is undeniably driving a lot of the current AI boom. But what’s missing is any mention of the software side and the significant VC investment going into AI-driven platforms, tools, and applications. This story could be more accurately titled ‘The GPU Investment Boom’ given how heavily it leans into the hardware conversation. Software investment deserves equal attention

I think GPUs and datacenter is to AI is what fiber was to the dotcom boom.

A lot of LLM based software is uneconomical because we don't have enough compute and electricity for what they're trying to do.

I think a better analogy is the valuation of Intel vs. that of Microsoft. For a long time, Intel dominated the CPU market. So you'd expect them to be the most valuable company. Instead, a small startup called Microsoft started dominating the software market and eventually became the most valuable company on the planet. The combined value of the software market is orders of magnitudes larger than that of all chip makers combined and has been for quite some time. The only reason people buy hardware is to use software.

The same is going to happen with AI. Yes, Nvidia and their competitors are going to do well. But most of the value will be in software ultimately.

GPUs and data centers are just infrastructure. Same for the electricity generation needed to power all that. The demand for AI is causing there to be a lot of demand for that stuff. And that's driving the cost of all of it down. The cheapest way to add power generation is wind and solar. And both are dominating new power generation addition. Chip manufacturers are very busy making better, cheaper, faster etc. chips. They are getting better rapidly. It's hard to see how NVidia can dominate this market indefinitely.

AI is going to be very economical long term. Cheap chips. Cheap power. Lots of value. That's why all the software companies are busy ramping up their infrastructure. IMHO investing in expensive nuclear projects is a bit desperate. But I can see the logic of not wanting to fall behind for the likes of Amazon, Google, MS, Apple, etc. They can sure afford to lose some billions and it's probably more important to them to have the power available quickly than to get it cheaply.

> But most of the value will be in software ultimately.

Isn't one of the points of AI to make democratize the act of writing software? AI isn't like other software inventions which make a product from someone's intelligence - long term its providing the raw intelligence itself. I mean we have NVDA's CEO saying to not learn to code, and lot of non-techies quoting him these days.

If this is true the end effect is to destroy all value moats in the software layer from an economic perspective. Software just becomes a cheap tool which enables mostly other industries.

So if there isn't long term value in the hardware (as you are pointing out), and there isn't long term value in the software due to no barriers of entry - where does the value of all of this economic efficiency improvement accrue to?

I suspect large old stale corporations with large work forces and moats outside of technology (i.e. physical and/or social moats) not threatened by AI, who can empower their management class by replacing skilled (e.g software dev's, accountants, etc) and semi-skilled labor (e.g call centre operators) with AI. The decision makers in privileged positions behind these moats, rather than the do'ers will win out.