View from the Valley: Are we facing an AI subprime debt disaster?

After the celebrations of Independence Day, July has been a rough month in the Valley. Amazon, Apple, Meta and Microsoft all filed their quarterly results and the reports spooked the markets.

On 29 July, Meta reported profits were down 14%, with earnings per share dropping by 13%. Its stock price fell by 10% on the news. That’s an understandable reaction, as was the fact that Microsoft’s share price rose by around 15% when it reported net income was up 31% year-on-year.

The day after Amazon declared revenues were up 20%, based on $53.4 billion in estimated earnings from its stake in Anthropic. Its share price remained steady.

Apple, which has notably not joined the massive spending on AI trend and instead is buying into it as a third party, saw its profit rise to just under $328 million a day for its Q3 results. Wall Street wasn’t happy with that, and the stock fell sharply. 

So what is going on? Has the stock market lost its mind? Well, possibly.

Enron accounting?

Part of this seems to come from commercial accounting. Tech stocks are keeping the US stock market floating but an investigation by Nikkei suggests that the tech titans are hiding $1.65 trillion in debt behind shell companies. This would make the 2008 subprime crisis look like a drop in the ocean, if AI doesn’t pay off.

All of this is legal, but the fact that tech businesses are resorting to the bond markets to fund expansion is a worrying sign. Particularly worrying for almost every American, whose retirement funds are tied into this.

Given that the Nasdaq exchange changed its rules to allow SpaceX’s IPO to be cleared for index funds, and the stock price is dropping faster than a faulty Falcon 9 rocket, many people in the Valley are severely worried.

Meanwhile, tech workers are getting increasingly concerned about their future. Gone are the days of in-house masseurs and carefully curated gourmet meals. Now it’s getting a lot less comfortable and techies are protesting – politely – to their corporate masters. As internet soothsayer Cory Doctorow put it, calls for unionisation are on the rise, albeit way too late.

Another SF tech conference bites the dust

At the end of the month, Semicon West, which has been a stalwart of tech conferences for decades, announced it is leaving SF and moving to Phoenix, Arizona.

This semiconductor conference started down in San Mateo in the 1970s and transferred to San Francisco once it got big enough. It has been a regular trip for chip makers around the world to discuss nanometers and fab plans, but the dusty plains of Arizona hold more promise, it seems.

Some will welcome the move – not least non-smokers. Semicon West saw a cloud of smoke around ashtrays at the Moscone Center as predominantly cigarette addicts took a break from wheeling and dealing. But the fact that chip manufacturing is no longer a primary Valley concern speaks volumes.

In one way the dispersion of chip manufacturing is a good thing – several states are getting in on the game thanks to the CHIPS Act. But it’s a sad loss for the Valley. Many deals got made over dinners at Tadich Grill and the Irish Bank after one too many martinis.

More by Iain Thomson

• Don’t panic, says Katie Moussouris: AI security isn’t replacing humans, it’s proving the need for them
• SpaceX IPO makes Musk the first trillionaire, thanks to your pension funds
• View from the Valley: If you’re going to San Francisco, you’re gonna find some angry people there