Good morning, and happy Monday. Here’s what’s happening today:
We look at Hurricane Melissa and America’s Halloween candy choices. But first: Is A.I. a bubble?
Reality check
How well is the stock market doing? That now depends, almost entirely, on artificial intelligence and the companies that make it. Those companies, concentrated in Silicon Valley, are spending hundreds of billions of dollars. Investors think this tech is the future, so they’re snapping up shares. By one estimate, 80 percent of U.S. stock gains this year came from A.I. companies. Does it feel like a bubble? Big names like Jeff Bezos (Amazon), Sam Altman (OpenAI), Jamie Dimon (JPMorgan) and David Solomon (Goldman Sachs) worry we’re on the cusp of a correction. They warn that valuations are getting too high and that eventually, reality may bite. And if those companies plunge, they’ll take the economy with them. But nobody is acting like we’re in trouble. The S&P 500 has notched more than 30 record highs this year. The wisdom of the bet rides on a basic question: Is A.I. a boom or a bubble? Here are the arguments. A boomIf A.I. tech can keep getting better, then A.I. companies can keep getting more valuable. Many believe it. These companies assume that building out A.I. infrastructure — more chips, more data, more power — improves the technology coming out the other end. This is called the “scaling hypothesis.” It helps explain why Nvidia and AMD recently announced $100 billion deals to install their chips in OpenAI’s data centers; why Amazon is spending more than $100 billion on A.I. data centers this year; why Meta will spend more than $600 billion over the next three years; and so on. Sales at Nvidia jumped 56 percent last quarter. That could mean more growth ahead, justifying the dizzying share prices and massive investments. My colleague Joe Rennison, who covers financial markets, sums it up nicely: Valuations have risen very quickly, but that’s because the main companies like Nvidia have had the earnings to back them up. We haven’t sated demand for chips yet, so we don’t know what the ceiling is. Steady spending has allayed worries on Wall Street. Companies haven’t lost faith in A.I., so investors haven’t either. A bubbleBut what if A.I. doesn’t quickly transform the economy? Then, businesses and users won’t grasp as eagerly for it. That could spell ruin for investors who’ve staked their financial futures on an A.I. revolution. Seven tech companies now account for more than a third of the value of the S&P 500 and trade at prices 70 times higher than their earnings, on average. And while nearly eight in 10 businesses already use generative A.I., just as many report “no significant bottom-line impact” from doing so. The spending spree, explains my colleague Cade Metz, who covers A.I., is based on faith: They’re banking on those scaling laws continuing indefinitely. They’re assuming that these really smart people at these companies will keep coming up with new ideas. These investments, in other words, are speculative. Companies like Oracle are taking on billions in debt under the expectation that the tech will advance, but there’s no guarantee. OpenAI is still losing money, and many A.I. companies continue to buy from and invest in each other in “circular” deals, my colleague Andrew Ross Sorkin wrote this month. If it becomes clear, at any point, that A.I. will fall short of expectations, then investors will pull back, and the bubble will pop. The stakesWe’ve been here before. In the late 1990s, investors poured their money into internet-based companies. Telecom firms built out infrastructure — tens of millions of miles of fiber-optic cables — to support the anticipated boom. It was a bubble. The profits never materialized, so investors sold off their shares and the companies collapsed. The Nasdaq lost more than three-fourths of its value, and it took 15 years to recover. This time, the companies involved are much bigger. Yet unlike their dot-com forerunners, they’re actually earning some money. Just not as much — for now — as investors hope. More on A.I.: Big tech companies are making the Cal State college system a training ground for A.I. tools in education.
Ana paces down the sidewalk, her front teeth missing and an ostomy bag taped under her hot pink lingerie. She’s 19, but many around her appear younger, writes Emily Baumgaertner Nunn, a reporter in Los Angeles. On this notorious street in South Central Los Angeles, preteens hobble in stilettos and G-strings, waving down cars to help meet their traffickers’ quotas. Ana got her start like many other girls: She was a foster kid, then a runaway, then a trafficking recruit. It all began when she was 13. At first, her trafficker demanded she make $800 a night — roughly half a dozen customers. The quota later rose to $1,200. This stretch, known as “The Blade,” is just an eight-minute drive from the University of Southern California. It’s the one place in Los Angeles where no car seems to honk: Customers wait politely, as if in line at a drive-through, to peruse the menu and take their pick. Investigators have tried for years to pull minors off the streets. But progress has been limited. Many girls fear the police. They know their traffickers will punish them if it seems they’re cooperating. The volume of child sex trafficking has exploded since the pandemic, when many girls were out of school and immersed in social media, where traffickers lurk. At the same time, the resources for L.A.’s vice squads shrunk, and changes in the law made it harder for the authorities to intervene. Now, the streets are getting busier; traffickers, more brutal; the police, more frustrated. This economy, built on the desperation of vulnerable children, is thriving.
Asia Tour
More on Politics
Hurricane Melissa
Israel and Gaza
More International News
Trump is running the U.S. like a casino. And the house — the already rich — always wins, Kyla Scanlon writes. Roger Rosenblatt loves being in his 80s. It is a decade of less selfish thinking and more time and freedom to give to others, he writes. Morning readers: Save on the complete Times experience. Experience all of The Times, all in one subscription — all with this introductory offer. You’ll gain unlimited access to news and analysis, plus games, recipes, product reviews and more.
Can that pumpkin float? See videos from an experimental regatta. Pumpkin spice in Europe: The Belgians are intrigued. The Italians? Not so much. Your pick: The most-clicked story in The Morning yesterday was about arrests in the Louvre heist. Judaism and social justice: Rabbi Arthur Waskow, who died at 92, sought to make worship more spirited and egalitarian — and called on Jews to work for peace and the environment.
N.F.L.: Americans were searching online for news about Nick Mangold, a former All-Pro center for the New York Jets, who died at 41 of complications from kidney disease. College football: L.S.U. fired its coach, Brian Kelly, less than 24 hours after losing to Texas A&M. |
