Written by Michael A. Johnson, Lead Editor & Market Strategist
Michael Burry Raises Concerns Over AI Profit Inflation
Burry's Accusations
Michael Burry, known for his role in predicting the U.S. subprime mortgage crisis, has recently targeted major U.S. tech companies in the AI sector. He accuses them of artificially inflating profits through aggressive accounting practices. Burry claims that these companies are extending the depreciation period of chips and lowering depreciation expenses to exaggerate profits during the AI boom.
Wall Street Warnings
Simultaneously, executives from major Wall Street investment banks and well-known short sellers are warning of a potential market correction in U.S. stocks.
U.S. Employment Data Signals Concerns
ADP Employment Report
The ADP report indicates a reduction of 45,000 jobs in October, marking the largest decline in two and a half years. The average weekly decrease in private sector payrolls was 11,250, reflecting deteriorating profit conditions and declining economic optimism.
Goldman Sachs Forecast
Goldman Sachs estimates that the U.S. may lose around 50,000 non-farm jobs in October, the largest drop since 2020. Their employment growth tracking indicator slowed from 85,000 in September to 50,000.
Economic Data Collection Challenges
White House Comments
Kevin Hassett, Director of the White House National Economic Council, stated that some economic data from October may never be recorded due to the recent government shutdown, complicating assessments of the U.S. economy's health.
Regulatory Developments
Consumer Financial Protection Bureau
The Trump administration has declared the funding source for the Consumer Financial Protection Bureau illegal, which could lead to the agency running out of funds in the coming months unless Congress passes new funding legislation.
Housing Market Insights
50-Year Mortgages
Discussions around 50-year mortgages have gained traction, with UBS analysts suggesting that while monthly payments may decrease, total interest paid could double over the loan's lifespan.
Market Reactions
Stock Market Performance
On Tuesday, U.S. stock indices closed mixed, with the Dow Jones reaching a record high. Concerns over high valuations in AI stocks led to declines in companies like Micron and Nvidia, while Apple saw gains.
AMD's Growth Projections
AMD's CEO Lisa Su projected that the AI data center market will exceed $1 trillion by 2030, with significant revenue growth expected from their data center business.
Corporate Developments
Google and Microsoft Investments
Google announced a $6.4 billion investment in Germany for data centers, while Microsoft plans to invest $10 billion in AI infrastructure in Portugal.
Oracle's Debt Rating Downgrade
Barclays downgraded Oracle's debt rating to "underweight," citing excessive capital expenditures for AI data center construction.
Conclusion
The financial landscape is currently marked by concerns over inflated AI profits, declining employment figures, and significant corporate investments in technology infrastructure. Investors are advised to remain cautious as market dynamics evolve.
