If you can see the future, by all means invest in the one stock that will go up the most. If you can't see the future, diversifying into assets that have negative correlation (one goes up if the other goes down) lowers volatility at the cost of limiting possible upside.
Nvidia has a massive pile of money. Where should they invest? If they believe in what OpenAI is doing, investing in it makes sense no matter what hardware OpenAI chooses. If OpenAI manages to make something much better than Nvidia hardware, Nvidia's sales will go down as the value of OpenAI goes (way) up. If OpenAI fails to make something as good as Nvidia hardware, they buy Nvidia hardware.
It is odd how internet commentators seem to think that companies make investment decisions as a way to root for a team. They do not. That is not how finance professionals think!
https://www.forbes.com/sites/iainmartin/2024/08/06/how-victo...
Data centers are being built on his land in New Albany:
https://www.wsj.com/tech/ohio-intel-chipmaking-investment-st...
So either Nvidia is dangling a carrot in front of the Epstein people in the Trump admin (Trump, Lutnick, etc.) or it is in on it. I wonder where Wexner got the CoreWeave tip.
"Nvidia is running on borrowed time" - https://youtu.be/k44OmbYqLzk
Can anyone explain how Nvidia is not shaping up to the modern GE? This plus it's recent entry into making a PAC does not bode well
Like there's communism which is centralized planning and the state owning the means of production.
Then I think there's Adam Smiths ideal form of capitalism that I think can loosely be described as independent demand signals allocate resources throughout the economy.
What happens when a capital accumulates in a smaller pool of folks who choose how to allocate those resources. Silicon Valley isn't responding to demand, it's essentially centrally planning where to assign resources to create demand.
Of course, this is very idealistic and simplistic.
However, what did people think was going to happen when the common wisdom is to put your money into an index and then shut up? It simply cannot be true that putting money into the index means you win. There's cost somewhere, a parasite on the system, that is going to come due at some point.
Warning about companies being able to command regulation on themselves. We're far past anything Adam Smith would have thought was a good idea for how we organize capital and commerce.
IBM had a system of "blue dollars". If the server group sells a computer, it gets revenue ("green dollars", i.e. real money). The leaders of the server group are credited some fraction of the real money as "blue dollars", which they can give to teams that enabled their success. For example, if sales are being won based on a new feature of the XLC compiler, the server group leads would recognize them by sending their blue dollars to the XLC compiler team. Teams choose what to do (and whose problems to solve) to maximize the amount of blue dollars they can get. Promotions and pay go to people who drive blue dollar "revenue" for their team.
Why does IBM work this way? It is too big to be centrally planned: If the compiler team does amazing work, and the engineers get no credit, all the smart and hardworking engineers leave. The central planners in Armonk re-invented a market economy to figure out what work matters and reward it.
At the extreme with 'AI' - there's no need for firms to exist.
'Power to the people' was always transitory - do you think the govt is dumb? Lets take a simple form of capital: cameras. Would cheap cameras exist without the private sector competing for shareholders interests? Probably not.
They aid and abet it. It benefits their own interests. This game goes on until the govt no longer see's the need for a private sector anymore.
Also, a corporation is infinitely more simple to manage than a whole country.
IMO a more important question is: what happens when the market power of a segment of society grows much greater than the rest? In a "K-shaped" economy, the top 20% have so much spending power (and even more future spending power) than their demand signals can overwhelm the rest. Then IMO the market won't respond to the demand signals of the bottom 20% and capitalism stops working for all. Add to that the possibility of AI automating more and more work and you have a system that only works for folks at the tops.
This isn't a resource allocation problem! it's a purchasing power distribution problem.
The things limiting provision of services are physical limits like the audience being widely dispersed or just characteristics like not all sharing the same needs and therefore not actually being addressable.
You obviously are well aware that addressability does not track with income category automatically but it does for many businesses. E.g. payday loans, rent to own, check cashing, dollar stores.
Since a large section of this group is in use of government credits, at the least businesses will evolve to meet the use of those. EBT grocers, Medicaid-focused care, etc.
The majority of the effort will be spent where the greatest economic opportunity is, but entrepreneurs will match their ability to address the market to their audience. It’s not possible for a dollar store to sell GPUs to Baseten. They don’t have the capability to do something useful there.
Thats literally how the whole economic system functions.
Silicon Valley is not centrally planned. The people at Microsoft did not go to a committee and ask the people who ran Sun Microsystems if it would be okay to release Windows NT. They mailed the CEO of Sun a coffin (1).
1. https://www.pcgamer.com/software/windows/the-team-behind-win...
People have this idea that Adam Smith "idealized" capitalism or that the Wealth of Nations is some sort of manifesto. It's much more of an empirical research (by the standards of the time) with observations and findings. It's equally useful if you're a communist or a free-market capitalist.
Adam Smith himself was fairly skeptical of massive corporations capital accumulation:
> "The directors of such companies, however, being the managers rather of other people's money than of their own, it cannot well be expected that they should watch over it with the same anxious vigilance with which the partners in a private copartnery frequently watch over their own. Like the stewards of a rich man, they are apt to consider attention to small matters as not for their master's honour, and very easily give themselves a dispensation from having it. Negligence and profusion, therefore, must always prevail, more or less, in the management of the affairs of such a company."
This is probably the most demand-mediated response of all time. The natural form of that is that the guy who we give lots of money to for his stuff is going to have lots to spend.
Not at all. In economics, demand has little to do with "wants", it means paying the price to buy the service. In that light, there isn't much demand for AI because the companies providing it are losing huge sums of money to subsidize underpriced and mostly free services.
The AI "demand" is now paid for by circular deals and huge debts incurred for the sake of centrally planned subsides - in confirmation of the comment you're trying to refute.
> They’re selling hardware that companies are demanding in large quantities because those companies need the hardware
Those companies don't need the hardware for funded demand (which isn't there), they need it to scalp the hardware market by hoarding and centralizing compute, while suppressing possible competitors - another centrally planned activity lacking any wider economic benefits.
PS. There's another big mistake in this expression "hardware that companies are demanding in large quantities" - the demands increase the price but they don't increase the quantity, because all relevant fabs are running at full capacity, they literally cannot provide more.
Then Lenin concluded that if you will always have concentration of power and some folks doing centralized planning, it might well be the state.
This is exactly where things are heading.
Theres no need for firms anymore at the extreme - the govt can own all.
If you want a good starting point book for an alternative to traditional capitalism and with a focus on the commons with none of this baggage, I highly recommend Henry George (https://en.wikipedia.org/wiki/Henry_George) and "Progress and Poverty" (https://en.wikipedia.org/wiki/Progress_and_Poverty) as it is a head-and-shoulders better read.
The other related word is Oligarchy, rule by a select few that think they know better than everyone else. Oligarchy seems to be a failure case of most modes of politics and economics. Capitalism and communism both fail over to oligarchy when left unchecked.
It's been argued that for as many centuries as humanity spent under feudalism that oligarchy is almost the "default state" of politics and economics and it takes great effort to avoid it. Adam Smith saw economic monopolies and knew they were a failure case of capitalism from early on. Capitalism was built on top of breaking apart monopolies like the East India Trading Company. We've always known that capitalism is just as likely to slip into oligarchy as any other "ideal" form of resource allocation/economics, especially because it started as oligarchy.
The problem is it's not easy to have an actual debate on this since to some folks questioning whether capitalism or this form of capitalism is serving societies needs rapidly gets you lumped in with the "communists".
At some point though it becomes impossible to hide that the Emperor does in fact have all the clothes and everyone else is naked by comparison.
That is an option. It is usually not the best option.
Dividends are taxed. You are forcing shareholders to pay a good chunk of money in taxes.
Suppose Nvidia decides not to hedge the risk that competing products eat into their margins. Some years they get lucky and are flush with revenue. Other years they have much lower revenue.
Even in bad years, they want to keep paying to make future products. Cutting employee pay or mass firings would break their engineering org. To avoid that, they would need enough cash on hand to survive several bad years. Now they can't pay dividends because they need this extra buffer of cash! Hedging is a better deal for everyone.
> The shareholders are free to invest in competing businesses.
OpenAI is not (yet) public. Most Nvidia shareholders can't choose to hedge risk by buying shares in OpenAI, or any similar company (they are all private or a small part of a bigger public business).
Unfortunately I think by the time people recognize the emperor having no clothes it'll be too late and we'll all suffer for it.
For anyone interested in reading more from Marx's side, Wage Labour And Capital by Marx is a pamphlet meant for mass distribution and not a difficult read. I've heard A People's Guide To Capitalism recommended as a high quality modernized version of the same ideas.