$2 Trillion AI Gap: Is NVIDIA, Alphabet, and Microsoft Overvalued?
A Reddit investor known as 'u/soukstah' made headlines by selling his shares of NVIDIA, Alphabet, and Microsoft based on a $2 trillion AI spending gap. The argument is that consumer and enterprise AI spending needs to reach nearly $2 trillion annually, according to the Financial Times. This would be ten times the current run rate of roughly $70 billion in AI cloud revenues.
The investor's math starts with return on invested capital (ROIC), which hyperscalers like Alphabet and Microsoft want to achieve at 30%. Based on this, they would need $636 billion annually, which is a significant increase from their current AI spending. This led the investor to conclude that software sales of this size aren't coming anytime soon due to consumers' preference for free digital products.
The argument was echoed by Bain & Company's latest technology report, which estimates that sustaining the AI buildout would require an AI market approaching $6 trillion annually by 2031. The company also suggests that consumer and enterprise AI together leave about $4.2 trillion of new revenue still to be found.