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LAST WEEK, OPENAI founder Sam Altman sat down for an interview with venture capitalist Brad Gerstner and Microsoft CEO Satya Nadella. Both are investors in OpenAI, so it seemed like a friendly audience. But Gerstner posed a question that seemed to make Altman uncomfortable.
Since introducing ChatGPT three years ago, OpenAI has posted impressive growth, but Gerstner wondered whether the company was, nonetheless, getting ahead of itself.
“How can a company with $13 billion in revenues make $1.4 trillion of spend commitments?” Gerstner asked. The commitments in question are OpenAI’s agreements to purchase computing resources. In total, they’d cost more than 100 times its current revenue. Commitments that top $1 trillion would be significant for any company, but they’re of particular concern because OpenAI has yet to turn a profit.
Altman was quick to debate Gerstner. First, he said, “we’re doing well more revenue than that.” He dismissed what he called “breathless concern” over OpenAI’s finances, and he expressed frustration at Gerstner—who is himself an OpenAI investor—for even asking the question.
“Brad, if you want to sell your shares, I’ll find you a buyer…I think there’s a lot of people that would love to buy OpenAI shares.”
In recent months, investors have been asking questions like this with increasing frequency, concerned about the economics underpinning the AI economy.
For everyday investors, these questions are important because many of the largest public companies are now heavily dependent on AI spending. At the top of the list: Nvidia. Its graphics processing unit (GPU) chips power most AI-based computers. Last week, it became the first company ever to reach a market capitalization of $5 trillion. It now accounts for 8% of the total value of the S&P 500. As a point of reference, it’s now worth more than the total value of the UK stock market. As a result, this debate has taken on more importance, so it’s worth looking at both sides.
Concerns about the AI ecosystem start with the worry that there’s a circularity to the profits these companies are generating. A little while back, Nvidia announced an investment of as much as $100 billion into OpenAI, at the same time that OpenAI is spending billions on Nvidia’s chips. Nvidia has invested in more than 100 other AI-related companies over the past two years, helping further drive demand for its own chips.
OpenAI also signed a deal with AMD, another chip maker, to buy tens of billions of dollars of AMD chips. As part of that deal, OpenAI will become a shareholder in AMD. Those are just some of the very sizable deals that have happened this year. Other complicated and interrelated deals involve Elon Musk’s xAI and a newly-public company called CoreWeave.
Beyond the potential circularity of these arrangements, there’s a more fundamental question: Sensing a parallel to the technology bubble of the 1990s, some are asking whether today’s AI spending is all being put to good use. A key feature of the 1990s bubble was the over-building of fiber optic networks, with the result that much of it went unused and billions were wasted. In the 1990s, those miles of unused fiber came to be known as “dark fiber,” leading some to ask whether today there are “dark GPUs.” In other words, are there Nvidia chips that have been sold but that are sitting dormant in a data center somewhere?
On this question, opinions differ. At a recent conference hosted by the venture firm Andreessen Horowitz, the consensus was that the notion of dark GPUs is off the mark. The speakers felt that there’s actually a shortage of GPUs. But this is an open question.
Satya Nadella has acknowledged that Microsoft does have Nvidia GPUs “sitting in inventory that I can’t plug in,” due to other constraints. It’s not clear how many, but this is another data point to consider. If there are too many surplus chips out there, it means Nvidia’s future sales may come in lower than expected. A sales shortfall would pose a risk to any stock but would pose a very significant risk to a highflier like Nvidia.
What would be the impact on everyday investors?
In the past, there was the expression that, “if General Motors sneezes, the country catches a cold.” That is the concern with these deals, and it isn’t limited to Nvidia. The so-called Magnificent Seven stocks—Nvidia, Microsoft, Apple, Alphabet, Amazon, Meta and Tesla—now account for more than a third of the S&P 500’s total market value, up from less than 10% a decade ago. So if they stumble, the overall market will stumble. That’s the risk, and that’s why it’s fair that investors want to better understand these companies’ finances.
That said, some see these concerns as overblown. While AI is hardly perfect, it’s delivering tangible productivity improvements across many industries. Among other things, AI can now create video, build spreadsheets and write computer code. New AI “agents” can even be scheduled to take actions autonomously. I’ve tried this myself and found the results remarkable. These capabilities are expanding rapidly.
How will things turn out? The reality is that no one knows for sure. Partisans on both sides of this debate make valid points. But as always, risk management should be paramount. Nvidia and its peers have helped drive the stock market up over the past two years. But because of the resulting top-heavy nature of the market, now is a good time for investors to review their portfolios. Look to see how diversified you are beyond these big tech stocks.
Do you own mid- and small-cap stocks, which carry much less exposure to these AI risks? Do you hold international stocks? Most importantly, do you hold bonds or cash which could meet your expenses in the event of a market downturn?
While stocks are still doing very well, this is a good time to take inventory.
Adam M. Grossman is the founder of Mayport, a fixed-fee wealth management firm. Sign up for Adam’s Daily Ideas email, follow him on X @AdamMGrossman and check out his earlier articles.
AI is in its infancy, somewhat similar to the internet in 1999. Companies overspent wildly in the early internet days. There was a lot of unused fiber optic cable buried everywhere. Today, the players are building data centers at a fast pace.
In 1999 there were companies at the top of the heap which no longer exist. Remember Quantum (QMCO) which returned more than 13,000% in 1999?
It is true, there are differences if we compare then, to the seven largest AI companies today. But the similarities include massive financial gambles. We are talking $Trillions.
There are massive assumptions in the bets being placed. Many assume that AI will remain GPU centric. But there are indications that smaller and less power-hungry chips will power many AI applications, and sooner than we expect.
It is also assumed that individuals and companies will happily pay for AI services, making AI profitable. It’s a “Build it and they will come” mentality. Forbes recently had an article which asked the question “OpenAI has gone wild with compute deals this year, committing to spend far more than its balance sheet can currently sustain. So who takes the fall if it can’t pay?” Open AI is committed to spending a grand sum total of $1.4 trillion on datacenters in the coming years — an eyebrow-raising figure for a company which claims its annual revenue is projected to reach $20 billion this year.
OpenAI has forged deals with Amazon, Oracle, Nvidia, Microsoft, AMD and Broadcom. These are the companies that are on the hook. If there is pain, it will be widespread. In order to come through on its compute commitments, OpenAI’s revenue would have to grow to an estimated $577 billion by 2029, roughly the size of Google’s revenue that same year.
OpenAI might be a spectacular black hole, absorbing the earnings of other companies. Or perhaps it is merely a parasite. Oracle, Nvidia, AMD and Broadcom gained a collective $636 billion in market cap on the days their deals with OpenAI were announced. Amazon gained 4%!
Businesses are excited by the prospects of cutting their work forces by 10, 20 or larger percentages. Savings would flow to the bottom line. Who wouldn’t be excited by turning out a product or service at significantly lower cost to the firm? However, this is reminiscent of the robotics and factory automation which began in the 1980s. Overall, workers didn’t fare very well. However, those that provided these systems and services rode the wave and did well. My firm was one of them.
‘In 1999 there were companies at the top of the heap which no longer exist. Remember Quantum (QMCO) which returned more than 13,000% in 1999?’
I remember watching a frontline episode on retirement and the financial crisis about 15 years ago and they interviewed some people who were willing to share their stories. One poor guy said he had just north of $1m in stock options in late 1999 and all he had to do was make a call to sell it but kept thinking it would go up and up – ‘just a little longer’ and he unfortunately missed it. He lost the opportunity to sell and he lost his job for good measure. That always stayed with me and my wife.
One Of the things Jonathan harped on – when you’ve won the game , stop playing. I always took that to mean, if you’ve hit the number you wanted, start de-risking. Yes, no one wants to pay the taxes in selling (if it’s an after tax account), but better to pay 15-20% and walk away.
Great analysis. The other thing that bugs me is it will just take one of those companies to falter and it will taint all of them in the market.
Michael Burry recently revealed a bet against Palantir. I’m not endorsing either Palantir or Burry, but this highlights that a lot of big players are looking at this and thinking this has similarities to the dot bomb and the housing crash (which Burry famously bet against before it happened.) That’s additional market risk that the investor doesn’t seem to be getting a premium on.
Very true. When markets are stressed, investors can panic. There’s the inclination to sell first and figure things out later. But I think you’re also making a related point: These companies are interdependent with each other in ways that outside observers can’t fully appreciate. And that could lead to a scary domino effect, depending on which domino falls first (or even appears to be at risk of falling).
I think one aspect of these deals to be concerned about is their circular nature. NVIDIA makes very expensive GPUs which provide the OpenAI computing power. They are making deals with OpenAI, funding the company. OpenAI in turn buys the GPUs. And so on. With about 40% of the S&P 500 now focused on the AI centric companies I mentioned, it would seem to be a house of cards. I think all it will take is for one thread to unravel.
> Do you own mid- and small-cap stocks, which carry much less exposure to these AI risks? Do you hold international stocks?
Adam, it still bothers me that the same thing was said during the last tech bubble where everyone said to broadly diversify and avoid the pain. The advice initially seemed sound, but then 2/3rds of the bear mauling happened soon afterwards taking the whole market down.
> Most importantly, do you hold bonds or cash which could meet your expenses in the event of a market downturn?
I think this is good advice is to take inventory of your essential spending needs for the next five years and take it out of the market. Stop counting that in your “net worth” that drives many investors to feel rich in a bubble.
Yes! The other upside of having this bond and cash position is the ability to do some modest re-investing when the market is at a big bottom. When you have this kind of position you feel far less anxiety (after the initial bubble burst) and usually see you can re-invest some of this money at a very opportune time. Isn’t this what Berkshire has always done and is doing now?
Thanks for this great article. There’s been a lot of buzz about the AI bubble and I appreciate your thoughtful and measured discussion. And also appreciate the reminder to check in on my portfolio and asset allocation!
Thank Adam, keep finding trends and situations that are interesting and note worthy. We appreciate all your great articles.
Very timely article and thank you.
Everybody can be drinking the cool aid but one has to adjust his portfolio, stock vs bond/cash, for these unusual valuations.
I would prepare for an extended bear market, and a 30% drop, based on what I gather so far.
Thanks Adam for the interesting and measured article.
I appreciate that you end with a call for the reader to consider if their asset allocation is still right for them.
As a globally diversified index investor with 10-15 year timeframe, I’ll just stay the course.
Two questions based on this article:
Are you suggesting we move out of whole market or S&P500 funds (e.g. VT) into value or dividend funds (e.g. SCHD)?
Is the overweighting of whole market indexes by a handful of companies cause for rethinking how the indexes are built? Such as including a log function to dampen the power distribution of a few big companies?
I’ve worked in IT for over 35 years. I always believed that technology would create more jobs—and for a long time, it did. IT has helped countless other industries grow and become more efficient.
Throughout my career, I’ve seen plenty of average and below-average IT workers, especially in the earlier decades. But success in IT always demanded real brainpower—the ability to define precise requirements, perform solid analysis, and deliver great products quickly and with minimal bugs. And this is exactly where AI now excels.
AI isn’t just changing other industries—it’s changing IT itself. AI can do many IT tasks faster and better. We’ll end up with fewer IT workers, and the ones who remain will be the top ones. As AI and computing power accelerate research, we may even see a reduced need for traditionally educated scientists. And it won’t stop there—many white-collar professions are likely to shrink as well.
Of course, we’ll still need plumbers and HVAC technicians. Some jobs simply can’t be automated.
If I were starting my career today, I’d go into healthcare—specifically as a Nurse Practitioner. It offers good pay, reasonable hours, and fewer responsibilities compared to being a doctor.
I read that some argue other points:
1) New technology created new opportunities and more jobs. AI will lower the demand for jobs + will pay the lucky ones a lot more.
2) the government will take care of it
3) Companies will let employees work fewer hours and keep the same number of them.
I have serious doubts that things will turn out alright. Just because new technologies in the past created new opportunities doesn’t mean the same will happen this time. AI is fundamentally different—if you truly understand what it is and what it can do, you know this isn’t just another technological shift.
Whenever I read that “the government will take care of it,” I can’t help but laugh. Most government initiatives are slow, inefficient, and massively over budget—meanwhile, millions of people will be left struggling.
And why would any CEO agree to employees working fewer hours? If a company has 1,000 employees working 40 hours a week, a 20% reduction in labor hours usually means 20% of them get laid off, and the rest work harder—for the same pay. I’ve seen this happen firsthand over years in the industry.
Meanwhile, the richest tech companies are paying their top AI talent nine-digit salaries—or more. Mark Zuckerberg Reportedly Made One Person a $1.5 Billion Job Offer — and Was Rejected.
That alone should tell you where the power and profit are heading.
AI will be great for solving health care problems. Education will get better if we do it right. That will be a tough task with the unions.
Go ahead and be skeptical; AI is already advancing quicker than we thought 2-3 years ago.
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Most investors on this site are indexers and don’t change their asset allocation. This is a pretty good choice for most, but when markets collapse, you will lose a lot. If you are too diversified, when one category excels and the other lags badly, your performance will suffer too.
Bond funds are another category that can lag for years. BND lost money in 5 years and made just 2-2.2% annually in the last 10-15 years.
The SP500 lost about 9% for 10 years, from 1-1-2000 to 1-1-2010.
In the next 15 years the SP500 did great.
Despite this, few investors take the time to learn how to switch slowly between broad asset categories or to apply timing strategies, often because they don’t believe such approaches can work.
Some of you are lucky to have pensions, but most don’t have them.
Lots of information. Sure there are times where the market is in a downtrend, but from 2000 to 2010 the market gained about 7% or 0.7% per year. Here are the long term stats
1990–2000+317% (≈ 12.9% annualized)
2000–2010+7% (≈ 0.7% annualized)
2010–2020+256% (≈ 13.6% annualized)
2020-2024 +96% (≈ 14.5% annualized
Much Agreement that AI will change everything as never before, but forecasting what will actually happen is no easy chore. I have managed to do very well with concentrating on Index S&P 500, and will continue. My toughest period was 2000, 2001 and 2002, combined 3 years a negative nearly 50% down. I sold nothing and that is my plan for the future, with 80% in S&P 500 index and 20% cash, so could care less about Bonds.
Just another way to look at the markets, but you need much patience when things are in a LONG downtrend. I am optimistic about the Future despite all the pessimism about AI and jobs.
But how is your cash invested? If you are over 55 and building a 3-5 year cash run-way – – even if you are in CDs and/or Treasuries if they are > 1 year, you are technically in bonds. Just look at your brokerage firm pie chart for your account. This wasn’t a bad ladder strategy to build over the past two years, with very safe rates > 4%. Again, I’m talking about folks > 55. I wouldn’t necessarily do it now, if I was < 55 (rates are declining and are < 4%). But you know when you’re > 55 it isn’t just about a market correction anymore!!!!! I started creating a “cash/bond bucket” at 52 because frankly safe rates hadn’t been that high in a very long time or very often in my life. My husband’s employment was very sensitive to technology changes and showing the stress. So hmmm, “Why not build in some extra safety at solid rates?” My husband unexpectedly passed away from complications of cancer, in a month, in 2024 (something unthinkable and devastating). This financial choice has already bought me considerable time and flexibility. Do I think about my total long-term rate of return? Absolutely! But I’m absolutely blessed to be able to think about it!
Adam’s post above is more measured than this alarming article in the NYTimes yesterday from William A. Birdthistle, former head of the Division of Investment Management at the U.S. Securities and Exchange Commission from 2021 to 2024. He’s not just talking about AI and the unsettling concentration of many U.S. index funds on 7 tech companies, but the complicating X factor of the current administration’s actions.
The #2 ‘Reader Picks’ comment to the above Times article laments, “Thanks for this warning. Now can someone at NYT do an article on how normal people can prepare for a severe, extended downturn, particularly people in retirement?” That was followed by 21 reader comments with advice all over the map, including “learn how to plant and grow vegetables. Get some chickens if you can.”
Speaking of chickens, I feel a bit like one with my head cut off. It is obviously time to “take inventory” for those of us in retirement who hope our invested savings will grow not sink. Will the U.S. stock market continue to mostly trend up, as it has for so long? I wish I could believe it.
In retirement, I have been spending quite some time writing software using AI tools exclusively and I really don’t know what will become of the vast software engineering industry that spans the globe.
The tools are already quite good if you know what you are doing and are dramatically improving with every update. A knowledgeable engineer spending $10-$20 (subsidized by venture capital) a day can produce excellent software at a price point equivalent to a team worth of good software engineers in India.
How that spills over to the wider economy is hard to tell.
Thanks for this! The link to the NYT article appears to be broken in your post so here it is as a gift article in hopes at least a few non-subscribers can read it.
https://www.nytimes.com/2025/11/07/opinion/donald-trump-great-gatsby-roating-20s-sec.html?unlocked_article_code=1.zk8.PHMi.y57GHvU02KcT&smid=url-share
I’m much more of an AI skeptic than Adam — I use the LLM bots on a daily basis, but just to search, answer questions, and do language translation (which they’re really good at). I can’t see any way they’re going to make money, let alone “change the world.” Altman is a charlatan, in my view. But as with any bubble, markets can stay irrational a long time, and you can miss a lot of gain by being right too soon! In the Great Recession, I took the advice of that TV guy everyone loves to hate, who always says, “No one ever made a dime by panicking.” I stood pat, all the way down, and all the way back up. It was nerve-wracking, but as a small investor, I know very well that if I try to time the market, I’m always going to be wrong. I made a very lucky guess with some Nvidia shares in 2021, then decided not to be greedy and sold 2/3 of them a year or so ago, figuring the rest is house money and I’d let it ride. AI today is looking more and more like real estate in 2006 — but seeing it is the easy part. Timing the market, not so easy!
The thing about AI that I don’t understand is how it is going to boost the overall US GDP. The US GDP is about 70% consumer spending. Yet if AI actually starts helping US businesses become more productive, generating more profits through lower costs and higher productivity, there will be fewer US workers(consumers) earning and contributing to the economy. I think of this as the AI conundrum. In the second quarter of 2025 the top 10% of the population in terms of income accounted for half of consumer spending. How much further can this trend go?
When business executives dream of a perfect future, I believe they think that means having few or no employees. Who would then buy their products?
I don’t understand the stock market today. 1. New federal policies are decimating the economy for the typical consumer. Today we see this from the bottom, with refusal to pay SNAP damaging the entire farm to table revenue stream for companies in food creation and servicing, to the top, with wage stagnating and loss of federal jobs and funding for other businesses (except military) at every level. Let’s add tariffs to the list of reasons for rising prices. 2. While AI can do incredible things, who will be the winners, who will be the losers, and how much productivity and profit can the winners command. On the one hand, it can answer most of the questions in my highly specialized field, but it also gives wrong answers, cannot walk in to a room and know immediately by the odor from the HVAC and the hum from under the table what is wrong and then fix it (even if there were working sensors everywhere, they’d have to be trained by smart people), and innovate (at least not for another generation).
Nice report on Altman’s interview, and on the general concerns surrounding AI. Thanks for the admonition to be prepared, which is always good advice to live by.