As we discussed last month, the AI buildout is about competition for capital, at such a scale that it's competing with the U.S. Treasury for money.
And this week, money is running from AI debt and into government debt (Treasuries).
That's why hotter inflation numbers and hotter economic data over the past two days have resulted in lower, not higher, Treasury yields.
Is it a signal that the technology revolution is slowing? That the payback on the AI buildout might be more at risk?
As we've discussed, the message from the White House AI meeting two weeks ago was no slowdown!
What's happened since?
There has been a rapid catch up to the top performing models. Anthropic was on top. OpenAI gained a little advantage. Now Meta and Google have both leaped higher, to the point that all four of these frontier model companies have converged on near the same capabilities.
Did the pacing of new model releases, based on the White House agreement of a few weeks ago, create the opportunity for others to catch up? Maybe.
Google held back its newest model, sending it to cyber defenders and government testers before it went public. Now it's been released. And on Sunday, Palantir's chief technology officer said, "We have frontier models now that have not been released… That would have been an unimaginable thought a year ago."
Again, if the frontier edge is held back, everyone else catches up. Small models today are more powerful than the biggest models of a year or two ago. Nvidia's Jensen Huang says 80% of startups now build on open models.
That's what they call diffusion. The most advanced AI is staying within the labs and the government for testing, but everything just behind it is moving into the economy.
And this is a key moment, as businesses and consumers begin to realize the productivity gains of AI, beyond generating voluminous text and goofy images. Google and Meta are putting powerful autonomous AI tools into the hands of billions of their users.
As with every technology revolution, prices will come down, and usage will go up. Right now, the market is trying to figure out which AI builders will make up for falling prices with more usage, and which ones won't.
Meanwhile the benefits for the broad economy have yet to be priced.
With that, let's revisit the latter half of my July 15 note, just following bank earnings from the second quarter:
"There has been a widely accepted story about how AI plays out. The machines do the work. Margins explode for a handful of winners. The rest of us end up idle and poor.
History tells us a different story.
The gains from major technological innovations never stay locked up in corporate margins. Competition drives down costs, and pushes the most value to the users.
Think about electricity. It didn't make the electric companies rich forever. It made everything else possible. The tractor didn't end work. It moved work off the farm and into everything we built next.
The spreadsheet was supposed to end the accountant. Instead we got more accountants, more analysts, more finance than ever. When a tool makes the work cheaper, we don't do less of the work. We do far more of it.
That's where AI accrues. Not in permanent margin explosion. It's in new products. New categories. Cheaper goods and services.
Health care that watches over you between doctor visits. Software built for a single customer. Education tuned to one kid. Quality of life goes UP.
Intelligence is becoming cheap and abundant. And when something as powerful as intelligence becomes cheap, we consume much more of it (insatiable). That doesn't make us idle. It makes us busier than we've ever been, doing things we couldn't do before.
If we look back at the printing press. It enabled the broad distribution of ideas. We got the Enlightenment. And the Enlightenment turned into machines, and we got the Industrial Revolution. The age of building.
The internet was our printing press. It gave everyone access to everything known. That was the modern enlightenment. AI is what comes next. It turns all of that knowledge into the capacity to build.
We may be standing at the front of a new building age. The American economy went through decades of over-consuming and under-making. The pendulum is about to swing."
P.S. Pro Perspectives is the daily note — the macro, policy and market structure work that ties everything together. To see how that work gets applied, we manage two model portfolios with documented, multi-year track records: Billionaire’s Portfolio and AI-Innovation Portfolio. Different strategies. Complementary research. Explore the platforms below…
