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Welcome back to the Rundown for another weekend deep dive. Today we are taking a look at the emergence of a K shaped economy thanks to AI. On one side you have companies with direct exposure to AI that are thriving. I'm talking about the hyperscalers, the GPU dealers, the companies building and powering these data centers. But the other side isn't doing so well. Young workers and white collar jobs are being threatened and that's impacting restaurants, retailers and more. So in today's episode, we're taking a closer look at the winners and losers of the K shaped economy and try to figure out if this is a phase or a permanent reality of the AI economy moving forward. We got a great show for you today. Let's dive in. All right, let's kick this off with the top arm of the K curve, the winners of this current economy, and no surprise here, it's dominated by big tech companies that are pushing the AI revolution. And even within this group, it can be divided up into two sides. You have the spenders and and you have the sellers. Let's start with the spenders first. These are the hyperscalers, the big tech giants that have cloud businesses. And they've committed to spend hundreds of billions of dollars to build out AI infrastructure in hopes that all this investment will lead to more revenues in the future. We got an earnings report from all the major players this week and all of them posted strong growth in their business and no signs of slowing down. On AI spent. Google crossed $100 billion in quarterly sales for the first time ever, driven by a 35% growth in their cloud division, which saw a big boost thanks to their cloud customers using their AI tools. Google also announced that they were raising their capex spending to $92 billion this year. Then you had Amazon. They also posted strong numbers. With AWS seeing its largest growth in three years, again thanks to AI demand. Amazon also expects to spend $125 billion in AI CapEx this year to build more AI data centers to to fill the AI demand. And then there's Microsoft. Their Azure cloud business grew 40%, the fastest out of all of them. And they plan to spend around $80 billion in fiscal 2025. We also heard from Meta and they committed to spend over $70 billion on AI capex. The thing is, these big tech companies can afford to spend all this money on AI because they have very profitable existing businesses. In fact, profit margins for Max7 companies, which includes Apple, Microsoft, Amazon, Meta, Nvidia, Google and Tesla, those margins continue to expand while margins for the rest of the S&P 493 as a whole are declining. So, I mean, that makes it nearly impossible for other companies to compete with these big tech giants and invest the amount of money needed to be competitive in AI. Collectively, big tech is spending 60% of their operating cash flow to build this AI infrastructure. So that means that these big tech giants will end up capturing all the upside from AI if the demand for AI ends up materializing. Now, I should mention OpenAI here. They've been one of the few winners outside of the hyperscalers. I mean, they pretty much kicked off the AI hype cycle with the launch of ChatGPT back in 2022. Today, ChatGPT has over 800 million weekly active users, which is crazy. Now, OpenAI's business is still relatively small compared to the big tech giants. They're only projected to do around $13 billion a year in revenue, but they expect to hit $100 billion in revenue by 2028. And just like the hyperscalers that I talked about, OpenAI is planning to spend hundreds, actually over a trillion dollars, on AI infrastructure to meet the AI demand. Now look, as of right now, investors have been okay with all this AI capex spending. OpenAI is still a private company, but they were Last valued at $500 billion, and they plan to IPO at over a trillion dollar valuation within the next couple of years. But we'll have to see how long investors are okay with all this AI CapEx spending, especially if this spending doesn't result in meaningful returns soon. I think companies like Google, Microsoft and Amazon are probably okay because they have cloud businesses and they're seeing more growth in their cloud business because of AI. But a company like Meta saw their stock suffer its worst day in three years this past week, not because they missed earnings, but because they said they were going to spend even more money on AI. As of right now, Meta hasn't shown a meaningful return on all this AI spending. I mean, they don't have a cloud business like the others. So I think investors might be starting to get a little bit nervous that all this AI spending might not lead to anything now. And that brings me to the biggest winner of the AI economy. The sellers. Now, all the money that these hyperscalers are spending to build AI infrastructure is going to companies making the chips and providing the power to run the data centers. At the very top sits Nvidia, which just hit a $5 trillion market cap this week. They are the undisputed backbone of the AI economy. They make the best AI chips, they have the CUDA software layer on top, which has essentially become their moat. But beyond Nvidia, there are other winners too. AMD's chips have become the second option to Nvidia, with AMD forecasting $4 billion in AI chip sales this year alone, with more to come in the near future. There's also tsmc, which is the only company that can manufacture these high end AI chips for Nvidia and amd. There's asml, which makes the super specialized and complex lithography equipment needed to manufacture the chips. And then you have companies like Micron, which makes these special memory chips which are needed for AI. And then there's the power companies that provide the insane amount of power needed to actually run these AI data centers. All these companies and industries that I just mentioned have seen their stock price skyrocket over the last few years thanks to AI. So if you're an investor or an employee of one of these companies, you've likely been a winner in the K shaped AI economy that we live in today. In fact, according to JP Morgan, AI related stocks have accounted for 75% of S&P 500 returns and 80% of earnings growth since Chat GPT launched back in November of 2022. And I think it's that stat right there that is a perfect example of of how the AI economy has resulted in a handful of winners and a ton of losers. Now let's take a look at the lower arm of the K economy. This is the side of the economy that is falling behind and I think we need to start with the labor market. There are real fears that AI is going to take everyone's job in the near future. In fact, I think some people think that it's already happening, especially for young people. The early data around it is pretty concerning. Entry level hiring in tech is down 25% year over year and over 50% lower than 2019. According to Signal Fire. Wage growth has flattened for young workers. It's the worst since the early 2000 and tens. And the unemployment rate for people under the age of 25 has climbed to 10%, which is more than double the national average. There was a viral chart making the rounds online this week showing that The S&P 500 has gone up more than 70% since Chat GPT launched back in November of 2022. But at the same time, job openings are down more than 30%. And then to add to the doom and gloom, there are weekly headlines of companies laying off thousands of workers. UPS, the delivery company said they've cut 48,000 workers so far in the name of cost savings and automation. Amazon announced that they've cut 14,000 corporate employees, with more cuts expected soon. Microsoft has laid off 15,000 workers. I mean, there is real fear right now this might just be the start of AI taking over people's jobs and leading to mass layoffs. But I do want to caution that headlines might not be as bad as they sound, at least according to Harvard economist Jason Furman, who served as the chair of the Council of Economic Advisors under President Obama. I actually got a chance to talk to Jason Furman for this weekend's interview episode, which drops tomorrow. But I want to give you guys a sneak peek of what he had to say in response to Amazon's job cut this week.