• Howie Town
  • Posts
  • Three Years Of My Degenerate Economy Index... Thanks To AI and Prediction Markets We Are All More Productive and Degenerate Now

Three Years Of My Degenerate Economy Index... Thanks To AI and Prediction Markets We Are All More Productive and Degenerate Now

Good morning everyone…

I have been in New York City all week working. And eating. I have not been in a writing mood because of my mangeled index finger. While it is definitely healing and quite a miracle, time seems to be standing still on the finger being useful and not getting in the way.

Tomorrow eve is the Cashtag Awards at The NYSE and I am looking forward to that. It will be a fun night of awards recognizing the best of the Stocktwits and Fintwit community. We will also be showing off some of the new Stocktwits products.

Onward…

My ‘degenerate economy index’ is turning three years old (you can follow along here). It is up 170 percent versus the Nasdaq 100’s 94 percent.

Google, Apple, the semiconductor index, Philip Morris, CBOE, CME, Intercontinental Exchange and Axon have been in the index from day one.

The newest additions to the index are Dutch Brothers (has been in the index once before), Amazon (end of last year), Hyperliquid Strategies and Clear Secure (it has already doubled since I added last year).

For the last year I have been concerned that the degenerate economy has too much supply and so my cash position has been high. Of course all my cash should have been in Google 😀 .

I have made a lot of mistakes of omission and commission the last three years but the end results are plenty good. I get asked all the time to set up the index as a paid or fee based product, but I am glad to have kept it free to copy and follow.

The biggest changes in the world since I started the index (not including politics and war) has been the proliferation of prediction markets and Artificial Intelligence (AI). AI has been a tailwind for technology and the prediction markets have sped us to a ‘we are all degenerates now’ era.

Let’s dive into the staggering AI numbers…

Consumer and enterprise AI demand has been off the charts. So much so that Google has added nearly $1 trillion in market capitalization in the last 30 days!

How? Why?

The must read newsletter from portfolio company Fiscal.ai breaks it down with a great explanation and charts…

Let’s give an example: In 2023, Duolingo introduced a new premium tier called Duolingo $DUOL ( ▲ 1.05% ) Max. The tier includes a feature called “explain my answer” that can audibly articulate to a user why their answer was wrong, much like a human teacher.

Underneath the hood, every time a subscriber taps that “explain my answer” button, Duolingo is spending less than one-tenth of a cent to ping OpenAI’s latest models for an answer.

If we take this analogy further downstream, in order to provide the best possible service to Duolingo, OpenAI has to continuously train its models. To do that, OpenAI partners with a public cloud provider like Microsoft Azure and buys compute capacity. To be more specific, OpenAI is renting the capacity of a bunch of AI-optimized servers loaded with semiconductors probably in some datacenter in the suburbs of DC. (Fun fact: 70% of internet traffic passes through a DC suburb called Loudoun County)

This is one example of an enterprise AI application. But if you zoom out, pretty much every company in the world is coming up with their own applications for AI. And this is, unsurprisingly, leading to a jaw-dropping number of orders for the public cloud vendors.

Big tech reported earnings this week, and one metric in particular stood out: Backlog.

Amazon Web Services, Microsoft Azure, and Google Cloud (aka “The Hyperscalers”) now have nearly $1.5 trillion in combined customer commitments. They have added $701 billion in new commitments over the last 6 months alone!

To be clear, these are not empty promises. In order to be counted as remaining performance obligations in an SEC filing, the commitments have to be “contractually binding and non-cancellable”.

While the duration of these commitments can be quite long (Anthropic recently signed a deal to spend $100 billion with AWS over the next 10 years), the Hyperscalers are still seeing accelerating growth in the short term as well.

In fact, each of the cloud providers reported an acceleration in revenue growth from Q4 to Q1.

Like I said earlier…all my extra cash should have been in $GOOG ( ▲ 0.34% )  😀 !

As for prediction markets, the interest is also staggering…

Booming productivity coupled with booming degeneracy is quite the economic cocktail!

Where AI productivity and degeneracy meet is media and ‘entertainment’.

This Marco Rubio AI clip series from Charles Curran is hysterical…

We are in the very early days of this new world.

Have a great Sunday.

Reply

or to participate.