[morellt]

Notice how the top stocks suddenly began making insane profit growth after march of 2023? GPT-4, arguably the biggest leap in AI actualization, released on March 14th, 2023. I assume that is when these largest companies (Apple, NVIDIA, Microsoft, Amazon, Meta, Google) started gaining crazy investment for data/AI/processing hardware.

I see it as an inflation of speculative worth of these companies. The value they are providing can in no way be proportional to the rate of growth of their stock. It is just a circulation of their own money being passed through each of those companies' services, and not anything of worth to the consumer.

[froidpink]

Meta's profit has increased almost 2x since 2023. Meta makes money from advertisers spending money on Meta. So the profit growth from Meta does very much come from the real economy

[bee_rider]

It comes from the real economy in the sense that it is money they could be spent on something productive, but was instead wasted on ads.

[piva00]

In a video I watched recently there was a breakdown of how much a plumbing company had to spend on "marketing" (aka: Google ads placement, Facebook/Instagram) to attract customers and their per-click pay was about 60 USD, they were spending around 16-18k USD per month on online ads to keep the business afloat.

I had no idea that physical small businesses like that needed to spend so much on marketing just to be found.

[jdross]

The very first thing you discover as a business owner managing cashflow is how hard you must work to get customers versus to provide a service.

[giancarlostoro]

Its worse if you get bombarded with negative reviews, which is why stuff like yelp holding you hostage is so bad. If you own an independent business outside of marketing, your reputation is everything. Especially now that anyone can blast your name because they didnt like how you said shiboleth or whatever.

So if you have a zillion negative yelp reviews, which you have no idea where they came from, since there's more negative reviews than you've ever had customers, but they want your money to hide them. ;)

[ch4s3]

Have to seems like a strong phrase. I found my last plumber and window guy on a facebook neighborhood group. Local ads for general services can be quite expensive, but doing some marketing through local groups only costs your time. I can see how driving business though clicks is attractive, but I'd be surprised if there was no alternative.

[piva00]

Have to if you want to scale the business, if you are a sole trader doing small gigs it's probably very achievable to only use local groups. If you rely on people searching for "plumbers in <X> city" while running a small business with some 5-10 folks I don't think you'd get enough work.

[bryanlarsen]

You don't want to use a plumber that has scaled their business. That means that they're sending out a new hire to do your plumbing rather than the plumber that originally built the company's reputation.

The best plumbers spend $0 on advertising. They've got enough business through repeat customers and word of mouth to keep their small set of plumbers busy, and they're expanding slowly enough to properly train apprentices and ensure quality.

[wiether]

> In a video I watched recently

Macy with Morning Brew ?

https://www.youtube.com/watch?v=ucWsaVbEu78

[piva00]

Exactly that one, couldn't remember at the time I posted, thanks!

[xnx]

> they were spending around 16-18k USD per month

Unfortunately, this doesn't mean too much without knowing the size of the business.

[msgodel]

Sales are the most important thing in business. Everything else only matters insofar as it drives sales.

[bee_rider]

Businesses aren’t real, they are just imaginary things that people use to help us organize the act of building and distributing things.

[cm2012]

Ads are a necessary matching method in capitalism, there is no better alternative unfortunately.

[bee_rider]

I don’t think this is true, but I also don’t know anybody way to verify it either way. Enthusiast forums were always a better source, although native ads can mess that up.

But, even if ads are a necessary evil, they are definitely overhead (in the sense that they don’t actually accomplish anything, just influence the decision as to what should be done). Maybe we can define some sort of ad-efficiency metric for an economy; what percentage of the money is spent influencing decisions, what percentage is spent actually implementing the decisions…

[cm2012]

Here is a longer version of my thinking: https://news.ycombinator.com/item?id=44714407

[msgodel]

I don't know if that's quite right. A nice business directory would probably be better but most people don't want to settle for that.

[cm2012]

Here is a longer version of my thinking: https://news.ycombinator.com/item?id=44714407

[msgodel]

Nah I don't think the directories need to be reviewed (except for listings for things that don't actually exist.) Just show the listings in lexicographic order like how phone books worked.

We already have the law as the meta norm. Let law enforcement do its job.

[blitzar]

Right around the time Meta stopped setting 100's of billions a year of cash on fire in the metaverse and pivoted to Ai.

[dragontamer]

I thought Meta put a total of maybe 30Billion in Metaverse?

A lot of wasted money but not 100B++

[cedws]

Reality Labs is still a thing, they’re still working on VR/MR.

[philipallstar]

To open-sourcing AI models though, no?

[blitzar]

To pay $100mil to ai devs.

I have a theory that Meta execs was so focused on the Metaverse that the Ai team succeeded thanks to the lack of supervision and interference from above - there was probably a board discussion between 2019 and 2022 about firing them all and just focusing up the Metaverse stuff becuase they were dead weight on the core mission of colonizing the Metaverse.

Turns out the Ai team was the lifeboat to save the drowning Metaverse.

[buyucu]

In my experience success of a project is inversely proportional to executive attention. The best thing seniour leaders can do is to get out of the way.

[froidpink]

Meta has been investing in AI for more than a decade

[gary_0]

Longer than that, for sure. They were deploying ML systems at least as far back as 2011.[0]

[0] https://en.wikipedia.org/wiki/EdgeRank

[blitzar]

And yet their quaterly and annual reports dont mention it at all till 2022 and the team are now being "helped out" by new $100mil talent.

There is an amazing team there that did the work, I am just saying it wasnt the visionaries vision that made that happen - and if it was they certainly wouldnt have let the Ai team publish or opensource their work.

[RC_ITR]

Meta is also a great example of AI leading to higher user engagement today.

Reels isn't powered by Transformers per se (likely more of a complex mix of ML techniques), but it is powered by honest-to-goodness SOTA AI/ML running on leading-edge Nvidia GPUs.

I think, because they're so impressive, people assume Transformers = AI/ML, when there's plenty of other hyperscale AI/ML products on the market today.

[arethuza]

What if a lot of that advertising is from AI companies that are likely to fail in any downturn - didn't advertising drop fairly sharply during at the end of the dot-com bubble?

[nemomarx]

month old but https://www.wheresyoured.at/the-haters-gui/ made this argument - that a lot of that profit was just recirculation between these companies

[const_cast]

Ive had this theory about the US economy for a while. There's mover, and makers. The movers just move money around, making nothing productive. The makers are what actually construct the world we live in and the services we use.

The US has a lot of movers, not enough makers. Our GDP is essentially propped up by fake jobs that do nothing. Of course we are a service economy, but a lot of this isn't even services, it's just move thing A to thing B then move it back and make money doing that. It would make sense if we're physically moving stuff - but we're not. We're just moving money back and forth.

[brokencode]

What do you mean recirculation? Isn’t the money flowing mostly in one direction (to Nvidia)?

[nemomarx]

well there's also openai and Microsoft, paying for cloud compute to run things. I think it could have a few round trips around. Nvidia is where it seems to all end up though yes

[nerdponx]

I have had this pet theory for a decade+ that this is the case for most of the economy, and the current "recirculative bubble" is just a really strong example of it happening in a tighter loop than usual.

Think about the classic economics fairy tale of why income redistribution is bad ("inefficient") and trickle-down economics is good.

Billionaire Bill buys his 10th yacht. Workers need to manufacture the yacht and all the different parts of it. He needs to hire staff to keep it clean, to maintain it, to operate it, and to stock the fridge; he needs to pay for satellite internet so he can do business on the yacht; and he needs to buy TVs for the kids. All of that stuff is produced by other businesses with their own employess and sometimes independent contractors. So all of this economic economic activity results in a flow of income to a large number of individuals. Those individuals then themselves all need to buy groceries, clothes, housing, transportation, etc. so all that income then continues to flow outward throughout the economy. The price system orchestrates everything so that the proceeds from Billionaire Bill's yacht are used to provide the goods and services of greatest value to everyone else.

That story of course is nonsense, but the question is: why? It seems correct. In fact it is broadly correct in the sense that the things described in the story do in fact happen in real life. So why isn't it a happy ending like in the fairy tale?

There are a few things going on here, but the one of importance here is where are those yacht-builder employees buying their goods and services from?

One missing aspect of the story is that they're paid a tiny amount compared to the top management of the yacht company and a few other specialists like the naval engineer, the captain, and the lead software developer. So they don't actually have a lot to spend. And what they do spend money on is largely provided by conglomerates controlled largely by Millionaire Mike and Trillionaire Todd, who of course are very close friends of Bill. Mike and Todd know ensure that their prices are as high as possible to capture as much of their customers' income as revenue. Mike and Todd then go buy golfing trips, yachts, mansions, etc. And the cycle continues.

The effect is that all the individual employees do in fact get some of Bill's billions of dollars in the form of income, but they only get enough to cover their essentials, and any profit from buying those essentials goes right back into the hands of another person just like Billionaire Bill. The income does in fact flow throughout the economy as in the bedtime story, but you can't understand the welfare of individuals within the economy by just looking at total flows.

You don't need to be a Marxist to see that this is how the economy works and has worked since the dawn of capitalism. It's a natural low-energy state that economies naturally tend towards, because humans are humans and there is always a minority that is willing and able to take avantage of others.

The only difference here is that the loop is tighter, where Bill Todd and Mike are all just buying each other's services directly.

[philipallstar]

> The value they are providing can in no way be proportional to the rate of growth of their stock.

Stock price is related to the predicted total value of the company from now until eternity, not the current value it's providing.

[lumost]

The real question is how much further the top tech firms can cut costs, and how much of their expenses they can shift to NVDA. They aren’t growing particularly fast at this point.

[RobKohr]

I divested from s&p and completely switched to funds that avoid these companies... Basically non computer tech.

When reality comes to the table it isn't going to be pleasant.

[Workaccount2]

You might want to consider an equal weight etf

$RSP is $SPY, but equal allocation across all 500 companies. So the top tech stocks are ~1.5% of your holding instead of ~20%.

[moduspol]

I looked into somehow hedging against the Mag 7 in my portfolio (which is otherwise almost entirely in an S&P 500 index fund), but it seemed surprisingly difficult for something that is probably quite widely desired.

Though maybe I'm just unsophisticated. And it feels a little hopeless because there's no telling how long the smoke and mirrors will continue working, and whenever it stops, undoubtedly the rest of the economy is going to suffer, too. Bleh.

[tg180]

Investments can never be identical for everyone, but in my case I switched my assets from an MSCI World to an MSCI World ex USA.

For the U.S. market portion I adopted a more complex strategy based on factor / smart-beta investing (making sure that none of the top holdings include AI-related companies).

[selectodude]

It’s not difficult, it’s just expensive.

[chistev]

Like which one?

[dragontamer]

I'm not completely divested but I'm buying some VFVA as my non-tech fund.

Top holdings are CVS, Verizon and FedEx all at 0.8%. Basically normal companies.

It's amazing how traditional companies have done in comparison to the top of the S&P500 (or really the top S&P10). So I feel the need to buy the other stuff in case the top S&P10 is a bubble.

[rvz]

Wise choice.

[mgh2]

Apple is still behind the AI game/story, its stock barely grew from 3T market cap height in 2022. It is treated as a safe investment- i.e. when the bubble pops.

The rest of the pack is feeding on the AI hype train, each supplying their services to pump up the story (analogy): Nvidia on chips (shovels), Microsoft and Amazon on cloud (gold storage), Meta and Google on ads (marketing).