Edward Conard

Top Ten New York Times Bestselling Author

  • “…a fresh argument for the productive value of inequality.” - David Autor, Professor of Economics, Massachusetts Institute of Technology
  • “…a must-read for serious students of economic policy.” - Glenn Hubbard, Dean, Columbia Business School, and former Chairman of the Council of Economic Advisers
  • “…a must-read for serious students of economic policy.” - Glenn Hubbard, Dean, Columbia Business School, and former Chairman of the Council of Economic Advisers
  • “…serious thinking for serious thinkers. …a thought-provoking blueprint for growing middle- and working-class incomes.” - Mitt Romney, former Governor of Massachusetts
  • “Unintended Consequences represents the most cogent and persuasive analysis of the Financial Crisis to date.” - Andrei Shleifer, 1999 John Bates Clark Medal Winner
  • “…reminds us that inequality sends a signal of what society lacks most, in America’s case, entrepreneurship and risk taking.” - Lawrence Lindsey, CEO, The Lindsey Group, former Director of the National Economic Council
  • “…a comprehensive explanation of the modern economy.” - Julian Robertson, Founder, Tiger Management
  • “Unintended Consequences should be read by anyone who takes for granted the superiority of progressive taxation and has not thought carefully about the trade-offs involved.” - The New Republic
  • “…a very valuable contribution.” - Larry Summers, former Secretary of the Treasury and director of the National Economic Council, president emeritus, Harvard University
  • “Unintended Consequences is full of substance, it is one of the must-read books of the year, and once I finish it I will be giving it a second read through right away.” - Tyler Cowen, Professor, George Mason University
  • “There are an amazing number of good ideas and interesting points made in Unintended Consequences. The thinking underlying it, and the obvious depth of understanding of the author, are very impressive.” - Steven Levitt, coauthor of Freakonomics; 2004 John Bates Clark Medal
  • “…challenges misconceptions that distort our economic debates.” - Arthur Brooks, President of the American Enterprise Institute
Upside of Inequality Oxford Unintended Consequences

Macro Roundup


Thursday, January 29, 2026

AI Summary. Federal Reserve rate changes affect short-term Treasuries, but long-term Treasury yields are driven more by expected inflation and real growth, according to the author's analysis. An "intrinsic" 10-year risk-free rate, calculated by adding actual inflation and real GDP growth, tracks the big historical moves in Treasury rates, standing at 5.10% against a 4.18% 10-year Treasury yield.

Aswath Damodaran Musings On Markets
Date Posted:
Is Database:
Database

Damodaran’s “intrinsic rate,” the sum of real GDP growth and inflation, has broadly tracked the nominal 10-year Treasury rate since 1954. The 10-year yield of 4.18% at the start of 2026 is “within reach” of the 5.10% intrinsic rate.

What drives long-term Treasury yields more than central bank rate moves?

Core argument: The ten-year Treasury rate of 4.18% at the start of 2026 sits within reach of the intrinsic risk-free rate of 5.10%, estimated by summing 2025 inflation and real GDP growth.

The Fed’s much publicized forays into changing the Fed Funds rate has some effect on the short term treasuries, but long term treasuries are driven less by the Fed’s actions (or inaction) and more by expected inflation and real growth. I capture that relationship every year by estimating an intrinsic ten-year risk-free rate, obtained by summing together actual inflation for the year and real GDP growth and comparing it to the ten-year treasury bond rate. Over the seventy years of data in this graph, it is clear that the big movements in treasury rates are captured in the intrinsic risk-free rate, with higher inflation in the 1970s coinciding with the rise in the treasury rate, and the sustained low rates of the last decade largely in sync with the low inflation and anemic growth during the period. As you can see, after a stint (2021-25) where the intrinsic risk-free rate was well above the ten-year treasury rate, largely because of higher inflation, the treasury rate of 4.18%, at the start of 2026, is within reach of the intrinsic rate of 5.10%, obtained by adding inflation and real growth in 2025.

Takeaways by Macro Roundup® AI

  1. The ten-year Treasury rate of 4.18% at the start of 2026 sits within reach of the intrinsic risk-free rate of 5.10%, estimated by summing 2025 inflation and real GDP growth.
  2. Fed Funds rate changes affect short-term Treasuries, while long-term Treasury rates are driven more by expected inflation and real growth.
  3. Across seventy years of data, big movements in Treasury rates track the intrinsic risk-free rate, with 1970s inflation coinciding with rising rates and the last decade's low rates largely in sync with low inflation and anemic growth.

Related Articles:

  • A Mystery in Fixed Income — Long-term interest rates have drifted higher than short-term rates and oil prices would predict, an unusual pattern during Federal Reserve rate-cutting cycles. Proposed explanations include investor concern about growing Treasury debt issuance or an effective increase in the Federal Reserve's 2% inflation target.
  • The Fed and the Secular Decline in Interest Rates — The authors find that the long-run decline in US Treasury yields since 1980 is fully accounted for by movements in a narrow window around Federal Reserve policy meetings, while yield changes outside that window prove transitory. They suggest the Federal Reserve conveys information to markets about the long-run level of interest rates.
  • Prosecuting Powell Would Be a New Low With No Upside — A U.S. plan for federally controlled mortgage agencies Fannie Mae and Freddie Mac to buy $200bn of mortgage-backed bonds amounts to quantitative easing aimed at cutting mortgage costs, and reflects that the Federal Reserve cannot control the long-term yields driving mortgage rates through its overnight rate target. The announcement pushed the 30-year benchmark mortgage bond yield below 5%.

AI Summary. Oracle shares have fallen more than 50% from their record high, erasing about $463bn in market value, as investors grow cautious about artificial intelligence and the company's ties to OpenAI. The decline comes as major technology firms pledge billions for data centers, in some cases without a clear return on investment.

Carmen Reinicke Bloomberg
Date Posted:
Is Database:
Database

Oracle’s share price has fallen more than 50% from its September 10th peak, driven by concerns about high CAPEX on data centers, debt issuance and Oracle’s links to Open AI.

Are investors growing cautious about AI spending and returns?

Core argument: Oracle shares have fallen more than 50% from last year's all-time high, erasing about $463 billion in market value from the record set on Sept. 10, as investors concerned about the AI trade and the company's OpenAI links exit the stock.

Oracle shares have fallen more than 50% from last year’s all-time high as investors concerned about the artificial intelligence trade and the company’s links to OpenAI flee the stock. The stock’s decline has erased about $463 billion in market value from a record hit on Sept. 10 after the company reported an impressive outlook for its cloud business that pointed to soaring demand for AI. The rally brought Oracle’s valuation to more than $933 billion, making it the 10th most valuable publicly-listed US company at the time. The swift decline in Oracle shares has been amplified by growing investor concern over AI as the biggest technology companies continue to pledge billions of dollars in capital expenditures to build out data centers, in some cases without a clear return on investment. Added to the mix are circular deals between OpenAI, a private company that’s not profitable, and companies such as Oracle and Nvidia.

Takeaways by Macro Roundup® AI

  1. Oracle shares have fallen more than 50% from last year's all-time high, erasing about $463 billion in market value from the record set on Sept. 10, as investors concerned about the AI trade and the company's OpenAI links exit the stock.
  2. Oracle's rally to its Sept. 10 record, following a cloud business outlook that pointed to soaring AI demand, lifted its valuation above $933 billion and made it the 10th most valuable publicly listed US company at the time.
  3. Oracle's decline has been amplified by investor concern that the biggest technology companies keep pledging billions of dollars in data center capital expenditures, in some cases without a clear return on investment, alongside circular deals between OpenAI, Oracle and Nvidia.

Related Articles:

  • Smothering Heights — The four largest cloud computing firms are devoting rising shares of revenue to capital spending and research, with Meta's combined share reaching 70%. Unlike past investment booms, this one has been financed mostly from internal cash flow: 28 direct AI stocks make up 50% of S&P 500 market value but just 5% of its net debt.
  • Is It a Bubble? — Transformational technologies have historically generated excessive enthusiasm and investment, producing more infrastructure than needed, asset prices that prove too high, and losses for those funding them, while also accelerating adoption. AI enthusiasm is argued to fit this pattern, with debt financing having the potential to magnify the effects.
  • Investors Seek Protection From Risk Of AI Debt Bust — Trading volumes in credit default swaps — insurance-like contracts against debt defaults — tied to major US technology companies including Alphabet, Amazon, Broadcom, CoreWeave, Meta, Microsoft and Oracle have risen 90%, according to clearinghouse DTCC data. The increase is most pronounced for Oracle and CoreWeave, both raising billions in debt for data centre capacity.

AI Summary. U.S. life expectancy at birth reached a record high of 81.4 years for women and 76.5 years for men, following a drop of more than 26% in drug-overdose deaths, the largest year-over-year decline recorded by the federal government. The age-adjusted overall mortality rate fell nearly 4%, to 722.1 deaths per 100,000.

Jennifer Calfas Wall Street Journal
Date Posted:

American life expectancy at birth hit an all-time high of 79 years in 2024, as opioid deaths declined. Overall drug overdoses declined 26% btw 2023 and 2024, the largest year-over-year drop on record. Provisional data suggest the decline is ongoing.

Has falling drug-overdose deaths pushed U.S. life expectancy to a record high?

Core argument: U.S. drug-overdose deaths fell more than 26% between 2023 and 2024, the largest year-to-year drop recorded by the federal government, according to the Centers for Disease Control, with provisional data through August 2025 showing continued decline.

Life expectancy in the U.S. reached a record high in 2024 following a substantial decline of drug-overdose deaths. The average life expectancy at birth for women and men in 2024 increased to 81.4 years and 76.5 years, respectively The [Centers for Disease Control] reported that deaths related to drug overdose decreased by more than 26% between 2023 and 2024, marking the largest year-to-year drop in those types of fatalities recorded by the federal government. Provisional data of drug-overdose deaths in the U.S. through August 2025 show a continued decline in those fatalities. The overall mortality rate in the U.S., adjusted for age, dropped in 2024 by nearly 4%, from 750.5 deaths per 100,000 Americans in 2023 to a rate of 722.1 deaths per 100,000 in 2024. Death rates decreased across races and ethnicities. Heart disease, cancer and unintentional injuries remained the top-three leading causes of deaths, the agency said, while Covid-19 was no longer among the top 10 causes of death. Death by suicide was the 10th-leading cause of death in 2024.

Takeaways by Macro Roundup® AI

  1. U.S. drug-overdose deaths fell more than 26% between 2023 and 2024, the largest year-to-year drop recorded by the federal government, according to the Centers for Disease Control, with provisional data through August 2025 showing continued decline.
  2. U.S. life expectancy at birth reached a record high in 2024, rising to 81.4 years for women and 76.5 years for men.
  3. The age-adjusted U.S. mortality rate fell nearly 4% in 2024, from 750.5 to 722.1 deaths per 100,000, with decreases across races and ethnicities and Covid-19 no longer among the top 10 causes of death.

Related Articles:

  • Did The Illicit Fentanyl Trade Experience A Supply Shock? — The authors argue that a major disruption in the illicit fentanyl trade, possibly tied to Chinese enforcement actions against precursor chemical manufacture and export, coincided with sharp declines in overdose deaths in both the US and Canada. China reported removing 140,000 advertisements and 14 online platforms tied to synthetic drug and precursor suppliers.
  • Accounting for the Widening Mortality Gap Between American Adults With and Without a BA — The mortality gap between American adults with and without a four-year college degree widened across three periods—falling mortality for both with larger gains for graduates, then diverging, then rising faster for the less educated during the pandemic—reaching an 8.5-year difference in adult life expectancy. Americans with a degree, treated as a separate country, would rank just below Japan.
  • Explaining the Widening Divides in US Midlife Mortality: Is There a Smoking Gun? — The US life expectancy gap between people with and without a college degree widened from 2.6 years to 6.3 years over roughly three decades, while mortality inequality across counties rose 30%. Using county- and state-level data, the authors attribute a key role to smoking rates, with secondary roles for income, other health behaviors, and state policies.

AI Summary. Copper prices have surged past $14,500 a ton even as China, which accounts for about half of physical consumption, shows signs of weak demand and futures market pricing points to ample supplies. Investors are favoring metals tied to growth markets such as robotics and artificial intelligence, including copper, aluminum and tin.

Bloomberg Staff Bloomberg
Date Posted:

Copper traded above $14,500 a ton for the first time, driven by Chinese speculative trading. Copper has now risen 25% since the start of December.

Are copper prices rising despite weak demand and ample supply?

Core argument: Copper has climbed past $14,500 a ton, a surge that has come despite indications of weak demand in China, which accounts for about half of physical consumption of the metal.

Copper has long been a favorite of investors who see the energy transition and the growth of data centers driving demand. Still, the recent surge in prices has come in spite of indications of weak demand in China itself, which accounts for about half of physical consumption of the metal, and a widening contango on the [London Metal Exchange], an indication of ample supplies. Investors have been flocking in particular to metals needed in major growth markets. Tesla plans to spend $20 billion this year shifting resources to robotics, and AI has underscored investment prospects. Copper, aluminum and tin would all be beneficiaries.

Takeaways by Macro Roundup® AI

  1. Copper has climbed past $14,500 a ton, a surge that has come despite indications of weak demand in China, which accounts for about half of physical consumption of the metal.
  2. A widening contango on the London Metal Exchange indicates ample copper supplies, even as investors continue to favor the metal on expectations that the energy transition and data-center growth will drive demand.
  3. Tesla plans to spend $20 billion this year shifting resources to robotics, and AI has underscored investment prospects in metals needed in major growth markets, with copper, aluminum and tin all beneficiaries.

Related Articles:

  • Amazon Is Buying America’s First New Copper Output in More Than a Decade — Amazon is buying copper from an Arizona project expected to yield 14,000 metric tons of copper cathode over four years, less than the tens of thousands of tons a single large data center requires for its electrical components. S&P Global estimates artificial intelligence will help lift copper demand 50% by 2040 while mining output dwindles, producing a 25% shortfall.
  • The World’s Copper Squeeze Is Set to Intensify on AI and Defense Spending, S&P Says — S&P Global projects copper demand will rise 50% to 42m tons by 2040 while production peaks near 33m tons in 2030 as ore quality declines at existing mines and new projects face permitting, financing and construction hurdles. The projected 10m-ton gap assumes recycled copper more than doubles to 10m tons.
  • Capital Is Making a Comeback — Tangible investment in property, factories and equipment fell from 12.5% to 8.5% of private gross domestic product, while intangible investment in intellectual property, software and process knowledge rose from about 11.5% to 16.75%. The author argues demand for tangible capital investment will now have to rise.

AI Summary. Central bank and other official-sector gold purchases fell to 863.3 tonnes, according to the World Gold Council, as high prices and the rising value of existing holdings damped further official buying. Investment demand for gold surged 84% to 2,175 tonnes, driven by exchange-traded fund inflows and demand for gold bars.

Leslie Hook Financial Times
Date Posted:

Central banks’ gold purchases – exclusive of Chinese official buying, which is unreported – declined 20% in 2025.

Are central banks buying less gold as investor demand surges?

Core argument: Investment demand for gold surged 84% to 2,175 tonnes, driven by exchange traded fund inflows and rising demand for gold bars, according to the World Gold Council.

Purchases by central banks and other institutions, such as sovereign wealth funds and government entities, fell to 863.3 tonnes last year, according to industry body the World Gold Council (WGC), as high prices and the swelling value of existing holdings damped demand for further buying by the official sector. However, investment demand for gold surged 84% to 2,175 tonnes compared with the previous year, driven by exchange traded fund inflows as well as rising demand for gold bars. Market participants believe China’s buying — much of which goes unreported and is not included in the WGC data — is even higher, once secret purchases are taken into account.

Takeaways by Macro Roundup® AI

  1. Investment demand for gold surged 84% to 2,175 tonnes, driven by exchange traded fund inflows and rising demand for gold bars, according to the World Gold Council.
  2. Purchases by central banks, sovereign wealth funds and other government entities fell to 863.3 tonnes, as high prices and the swelling value of existing holdings damped further official-sector buying.
  3. Market participants believe China's gold buying is higher than the World Gold Council's figures indicate, since much of it goes unreported and is excluded from the WGC data.

Related Articles:

  • Precious Comment: Raising Our Gold Price Forecast on Sticky Hedges — Analysts forecast a 17% rise in gold prices by end-2026, with emerging-market central bank buying averaging 60 tonnes contributing 14 percentage points and Western exchange-traded fund inflows on 50 basis points of Federal Reserve rate cuts adding 3. Risks are seen as skewed to the upside.
  • China’s Secretive Gold Purchases Help Fuel Record Rally — China's central bank has officially reported buying just 25 tonnes of gold this year, but Société Générale estimates from UK export and trade data that actual purchases could reach 250 tonnes, more than a third of global central bank demand. Buying also occurs through China's sovereign wealth fund and military, which need not disclose holdings promptly.
  • Everything You Need To Know About Gold — The historical relationship in which gold prices fall as real 10-year Treasury yields rise has broken down, since gold pays no interest and would normally become less attractive as rates rise. The author argues this reflects a "debasement trade," with investors seeking safe havens on fears governments will inflate away unsustainable public debt.

Friday, January 30, 2026

AI Summary. A monetarist critique of the Federal Reserve attributes inflation in part to the expansion of its balance sheet and argues that a smaller balance sheet would create room for interest-rate cuts. The same view holds that a large balance sheet encroaches on fiscal policy and carries distributional consequences, implying a trade of wealth effects for lower rates.

Joseph Wang Fed Guy Blog
Date Posted:

Kevin Warsh, Trump’s nominee for Fed chair, is a long-time critic of the Fed, but from a hawkish monetarist stance. His emphasis on balance sheet reduction may permit him to lower the funds rate more than in the absence of such “quantitative tightening.”

Would a smaller central bank balance sheet allow lower interest rates?

Core argument: Kevin Warsh, a long-time Fed critic, attributes inflation in part to the Fed's balance sheet expansion and argues that shrinking the balance sheet would give the Fed more room to cut interest rates.

Warsh is a long time critic of the Fed who has consistently argued for a smaller balance sheet. He holds a monetarist view where he attributes inflation in part due to the Fed’s balance sheet expansion, so he suggests a smaller balance sheet would give the Fed more room to cut rates. He has also highlighted concerns over mission creep, where a large balance sheet encroaches upon fiscal policy. Secretary Bessent notably echoed the same philosophy in a widely read essay published in Spring 2025 that also expressed concerns over the distributional consequences of a large Fed balance sheet. A Warsh Fed would be one who seeks to trade the wealth effect for more rate cuts.

Takeaways by Macro Roundup® AI

  1. Kevin Warsh, a long-time Fed critic, attributes inflation in part to the Fed's balance sheet expansion and argues that shrinking the balance sheet would give the Fed more room to cut interest rates.
  2. Warsh argues that a large Fed balance sheet creates mission creep by encroaching on fiscal policy, a concern Secretary Bessent echoed in an essay published in Spring 2025.
  3. A Warsh-led Fed would seek to trade the wealth effect for more rate cuts, and Bessent's essay also raised concerns over the distributional consequences of a large Fed balance sheet.

Related Articles:

  • Data Update 3: The Trust Deficit – Bonds, Currencies, Gold and Bitcoin in 2025! — Federal Reserve rate changes affect short-term Treasuries, but long-term Treasury yields are driven more by expected inflation and real growth, according to the author's analysis. An "intrinsic" 10-year risk-free rate, calculated by adding actual inflation and real GDP growth, tracks the big historical moves in Treasury rates, standing at 5.10% against a 4.18% 10-year Treasury yield.
  • Who Buys Treasuries When the Fed Reduces its Holdings — Analysis of Federal Reserve balance sheet reduction finds that households and broker-dealers absorbed the additional supply of Treasury securities during the 2017–2019 episode, with household holdings correlated with hedge fund holdings. In the first year of the reduction begun in 2022, households purchased a large share while hedge funds did not, and insurance companies and foreign investors also increased holdings.
  • Summers Says Slowing Balance-Sheet Runoff Pace Is ‘Alarming’ Signal on Debt Fragility — The Federal Reserve cut the monthly cap on Treasury securities allowed to roll off its balance sheet to $5bn from $25bn; because its purchases create interest-bearing bank reserves, slowing the runoff shortens the effective maturity of US public-sector debt. One argument holds this signals fragility in placing government debt amid worsening fiscal policy.

AI Summary. Capital spending by Amazon, Meta, Oracle, Alphabet and Microsoft has tripled since 2023, and sell-side forecasts project more than $2.7tn of cumulative outlays through 2029, mostly tied to AI infrastructure. These programs, initially funded largely from internal cash flow, are shifting toward debt, with the companies pricing roughly $90bn of bond deals.

John Cortese, Rob Bittencourt, Akila Grewal, Shobhit Gupta, et al. Apollo
Date Posted:

Apollo forecasts a cumulative $2.7T of AI-related spending from 2025 to 2029, which will be increasingly debt funded – reflecting “a material shift in these companies’ historical reliance on cash flow-funded financing models.”

How are big tech companies shifting from cash to debt financing?

Core argument: Sell-side forecasts point to more than $2.7 trillion of cumulative hyperscaler capex outlays from 2025 to 2029, the majority tied directly to AI infrastructure, with hyperscaler capex already tripled since 2023.

The estimated capex needs, especially if the more optimistic scenarios for AI adoption are realized, are staggering. Hyperscaler capex has already tripled since 2023, with Amazon, Meta, Oracle, Alphabet (Google) and Microsoft together sponsoring the largest private-sector infrastructure buildout in decades. Sell-side forecasts now point to more than $2.7 trillion of cumulative outlays from 2025 to 2029, the majority tied directly to AI infrastructure. Initial capex outlays were largely self-funded with internal cash flow, but we expect debt to play a more central role in funding the hyperscalers’ capex programs going forward which will have meaningful implications for credit markets. This pivot is already visible in recent debt issuance patterns. In the last three months of 2025, Oracle, Meta, Google and Amazon priced multibillion-dollar deals totaling $90 billion. Oracle raised debt equivalent to nearly 40% of its $50 billion fiscal year 2026 capex guidance, while Meta and Alphabet issued debt equivalent to approximately 30% and 20% of their fiscal year 2026 capex forecasts, respectively. These debt issuances represent a material shift in these companies’ historical reliance on cash flow-funded financing models. Allocators may be taking on a growing, often hidden, “AI beta” across asset classes. For fixed income investors, this means considering a broader set of assets.

Takeaways by Macro Roundup® AI

  1. Sell-side forecasts point to more than $2.7 trillion of cumulative hyperscaler capex outlays from 2025 to 2029, the majority tied directly to AI infrastructure, with hyperscaler capex already tripled since 2023.
  2. Oracle, Meta, Google and Amazon priced multibillion-dollar deals totaling $90 billion in the last three months of 2025, a material shift from these companies' historical reliance on cash flow-funded financing models.
  3. Oracle raised debt equivalent to nearly 40% of its $50 billion fiscal year 2026 capex guidance, while Meta and Alphabet issued debt equivalent to approximately 30% and 20% of their fiscal year 2026 capex forecasts, respectively.

Related Articles:

  • Oracle’s Value Is Cut In Half From 2025 Peak as AI Caution Rises — Oracle shares have fallen more than 50% from their record high, erasing about $463bn in market value, as investors grow cautious about artificial intelligence and the company's ties to OpenAI. The decline comes as major technology firms pledge billions for data centers, in some cases without a clear return on investment.
  • Smothering Heights — The four largest cloud computing firms are devoting rising shares of revenue to capital spending and research, with Meta's combined share reaching 70%. Unlike past investment booms, this one has been financed mostly from internal cash flow: 28 direct AI stocks make up 50% of S&P 500 market value but just 5% of its net debt.
  • Financing The AI Boom: From Cash Flows To Debt — Spending on semiconductor plants and data centers, negligible before recent years, has averaged 0.4 percentage points of US GDP growth, and total IT-related investment has reached 5% of GDP, exceeding its dot-com-era peak. Unlike that earlier boom, which was driven by firms using IT products, the current one is driven by IT producers.

AI Summary. Morgan Stanley's accounting team estimates that splitting hyperscaler capital spending into AI and non-AI components, with graphics chips assumed to last up to six years and warehouses 15 years, could quadruple Alphabet's depreciation expense within several years and lift Oracle's from $4bn to $56bn, equal to 28% of expected revenue.

Bryce Elder Financial Times
Date Posted:

According to a Morgan Stanley analysis, Oracle’s depreciation will be ~28% of revenue by 2029, up from only ~5% today. Meta’s and MSFT’s will both rise to just under 20%, and Google’s will double to ~10%.

How much will AI spending inflate hyperscaler depreciation expenses?

Core argument: Morgan Stanley's Accounting & Tax desk calculates that Oracle's $4bn 2025 depreciation charge could reach $56bn by 2029, equivalent to 28% of the revenue consensus expects for that year.

Because tech companies rarely break out depreciation in their income statements, analysts often take a blunt approach and model the effect through cash flow, then fiddle with their operating margin estimates until everything hangs together. During periods of high investment in assets whose useful lives are very different, namely GPUs and warehouses, the analyst has a very high chance of being wrong. Morgan Stanley’s Accounting & Tax desk, led by analyst Todd Castagno, takes a more granular approach. The team splits hyperscaler capex into AI and non AI, smooths out construction-in-progress costs, and allocates the expected lease expenses to property. The team assumes GPUs have a useful life of up to six years and that warehouses will last for 15 years. Based on Morgan Stanley’s calculations, Alphabet’s depreciation expense could quadruple by its 2028 year-end. Oracle’s 2025 depreciation charge of $4bn might balloon to $56bn by 2029, which would be equivalent to 28% of revenue expected by the consensus. Unless forecasts move significantly higher, depreciation will soon come to dominate total expenses.

Takeaways by Macro Roundup® AI

  1. Morgan Stanley's Accounting & Tax desk calculates that Oracle's $4bn 2025 depreciation charge could reach $56bn by 2029, equivalent to 28% of the revenue consensus expects for that year.
  2. Morgan Stanley's team, led by Todd Castagno, estimates Alphabet's depreciation expense could quadruple by its 2028 year-end, splitting hyperscaler capex into AI and non-AI and assuming GPUs last up to six years and warehouses 15 years.
  3. Because tech companies rarely break out depreciation in income statements, analysts model the effect through cash flow and adjust operating margin estimates, an approach with a high chance of error when GPUs and warehouses have very different useful lives.

Related Articles:

  • AI Capex Risk as Predictable Engineering — The 2020 scaling-laws paper fostered a belief that mixing compute, data, and parameters yields better AI models in a deterministic way, which the author argues let unusually large capital spending plans pass without investor revolt. The author contends that curve was empirical rather than physical and is now breaking, returning AI capital spending to normal economics.
  • Smothering Heights — The four largest cloud computing firms are devoting rising shares of revenue to capital spending and research, with Meta's combined share reaching 70%. Unlike past investment booms, this one has been financed mostly from internal cash flow: 28 direct AI stocks make up 50% of S&P 500 market value but just 5% of its net debt.
  • Honey, AI Capex is Eating the Economy — Capital spending on AI data centers is around 20% of railroads' peak spending as a share of GDP and is rising quickly, having already surpassed the dot-com era peak in telecom investment. Unlike long-lived rail infrastructure, data centers are short-lived assets requiring frequent hardware replacement, and the capital is being reallocated from other sectors.

AI Summary. By the investment firm's definition of a bubble — a price two standard deviations above an asset class's long-term real trend — U.S. equities are in bubble territory and extremely overpriced on historically effective valuation metrics, with a cyclically adjusted price-earnings ratio of 40 and a record share of the market trading above 10x sales.

Jeremy Grantham and Edward Chancellor GMO
Date Posted:

Jeremy Grantham notes, “We have always defined a bubble as a two-standard-deviation divergence of the price of any asset class above its long-term real price trend. The U.S. stock market has now been in bubble territory for a prolonged period.”

Are U.S. equities in bubble territory by standard valuation measures?

Core argument: GMO argues U.S. equities are extremely overpriced by every historically effective valuation metric, with a CAPE of 40 above any level seen outside the very peak of the internet bubble.

At GMO, we have always defined a bubble as a two-standard-deviation divergence of the price of any asset class above its long-term real price trend. The U.S. stock market has now been in bubble territory for a prolonged period. Sooner or later, the bubble will burst and the price will return to its historic level. By every historically effective valuation metric, U.S. equities are now extremely overpriced. Their CAPE of 40 is above any level seen outside the very peak of the internet bubble. The U.S. market cap to GDP ratio, the so-called Buffett Indicator, is at all-time highs. A record proportion of the U.S. stock market trades at over 10 times sales; AI-enabled surveillance company Palantir trades at over 100 times sales. Tesla, Musk's flagship company, trades at over 300 times earnings, with earnings down 61% year over year and negative revenue growth.

Takeaways by Macro Roundup® AI

  1. GMO argues U.S. equities are extremely overpriced by every historically effective valuation metric, with a CAPE of 40 above any level seen outside the very peak of the internet bubble.
  2. GMO defines a bubble as a two-standard-deviation divergence of an asset class's price above its long-term real price trend, and says the U.S. stock market has been in bubble territory for a prolonged period and will eventually return to its historic level.
  3. A record proportion of the U.S. stock market trades at over 10 times sales, with Palantir above 100 times sales and Tesla above 300 times earnings alongside earnings down 61% year over year and negative revenue growth, while the Buffett Indicator sits at all-time highs.

Related Articles:

  • Oracle’s Value Is Cut In Half From 2025 Peak as AI Caution Rises — Oracle shares have fallen more than 50% from their record high, erasing about $463bn in market value, as investors grow cautious about artificial intelligence and the company's ties to OpenAI. The decline comes as major technology firms pledge billions for data centers, in some cases without a clear return on investment.
  • Is It a Bubble? — Transformational technologies have historically generated excessive enthusiasm and investment, producing more infrastructure than needed, asset prices that prove too high, and losses for those funding them, while also accelerating adoption. AI enthusiasm is argued to fit this pattern, with debt financing having the potential to magnify the effects.
  • Smothering Heights — The four largest cloud computing firms are devoting rising shares of revenue to capital spending and research, with Meta's combined share reaching 70%. Unlike past investment booms, this one has been financed mostly from internal cash flow: 28 direct AI stocks make up 50% of S&P 500 market value but just 5% of its net debt.

AI Summary. OpenAI is planning an initial public offering and is seeking to raise more than $100bn in a funding round that would value it at $830bn. A listing could bolster market confidence in its finances after investors questioned how it would fund AI infrastructure and chip deals totaling hundreds of billions of dollars.

Berber Jin, Corrie Driebusch and Kate Clark Wall Street Journal
Date Posted:

OpenAI is “laying the groundwork” for an IPO in Q4, with the aim of getting to market prior to Anthropic. The firm is currently raising ~$100B in private capital at a valuation of $830B.

Can a public listing shore up confidence in an AI leader's finances?

Core argument: OpenAI is seeking more than $100 billion at an $830 billion valuation in a fundraising campaign that could run for much of the year and serve as a pre-IPO round.

It is expected to be a blockbuster year for stock-market debuts after a recent drought, and some on Wall Street are speculating that 2026 could be the biggest year ever for IPOs. OpenAI, rival Anthropic and SpaceX are among the most closely watched tech darlings that could go public, though listing activity also has picked up for smaller companies. Pulling off a successful public listing by year’s end is likely to be difficult for the ChatGPT maker, which is still confronting the challenges of a fast-growing startup. An IPO could help the AI startup shore up market confidence in its finances after investors questioned how it would pay for AI infrastructure and chips deals that total hundreds of billions of dollars in the coming years. OpenAI is in the throes of a fundraising campaign that could take place for much of this year, in what could be a pre-IPO round. It is seeking to pull together more than $100 billion in a deal that would value the startup at $830 billion.

Takeaways by Macro Roundup® AI

  1. OpenAI is seeking more than $100 billion at an $830 billion valuation in a fundraising campaign that could run for much of the year and serve as a pre-IPO round.
  2. OpenAI plans a fourth-quarter IPO ahead of Anthropic, a listing that could shore up market confidence in its finances after investors questioned how it would fund AI infrastructure and chips deals totaling hundreds of billions of dollars.
  3. Some on Wall Street speculate that 2026 could be the biggest year ever for IPOs, with OpenAI, Anthropic and SpaceX among the most closely watched companies that could go public after a recent drought.

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