{"id":3965,"date":"2025-09-06T17:53:08","date_gmt":"2025-09-06T17:53:08","guid":{"rendered":"https:\/\/www.newsbeep.com\/ie\/3965\/"},"modified":"2025-09-06T17:53:08","modified_gmt":"2025-09-06T17:53:08","slug":"deutsche-bank-on-the-summer-ai-turned-ugly-more-sober-than-the-dotcom-bubble-with-som-troubling-data-center-math","status":"publish","type":"post","link":"https:\/\/www.newsbeep.com\/ie\/3965\/","title":{"rendered":"Deutsche Bank on ‘the summer AI turned ugly’: ‘more sober’ than the dotcom bubble, with som troubling data-center math"},"content":{"rendered":"

Deutsche Bank<\/a> analysts have been watching Amazon<\/a> Prime, it seems. Specifically, the \u201cbreakout\u201d show of the summer, \u201cThe Summer I Turned Pretty.\u201d In the AI sphere, analysts Adrian Cox and Stefan Abrudan wrote, it was the summer AI \u201cturned ugly,\u201d with several emerging themes that will set the course for the final quarter of the year. Paramount among them: The rising fear<\/a> over whether AI has driven Big Tech stocks into the kind of frothy territory that precedes a sharp drop.<\/p>\n

The AI news cycle of the summer captured themes including the challenge of starting a career, the importance of technology in the China\/U.S. trade war, and mounting anxiety about the impact of the technology. But in terms of finance and investing, Deutsche Bank sees markets \u201con edge\u201d and hoping for a soft landing amid bubble fears. In part, it blames tech CEOs for egging on the market with overpromises, leading to inflated hopes and dreams, many spurred on by tech leaders\u2019 overpromises. It also sees a major impact from the venture capital space, boosting startups\u2019 valuations, and from the lawyers who are very busy filing lawsuits for all kinds of AI players. It\u2019s ugly out there. But the market is actually \u201cmore sober\u201d in many ways than the situation from the late 1990s, the German bank argues.<\/p>\n

Still, Wall Street is not Main Street, and Deutsche Bank notes troubling math about the data centers sprouting up on the outskirts of your town. Specifically, the bank flags a back-of-the-envelope analysis from hedge fund Praetorian Capital that suggests hyperscalers\u2019\u00a0massive data center investments could be setting up the market for negative returns, echoing past cycles of \u201ccapital destruction.\u201d<\/p>\n

AI hype and market volatility<\/p>\n

AI has captured the market\u2019s imagination, with Cox and Abrudan noting, \u201cit\u2019s clear there is a lot of hype.\u201d Web searches for AI are 10 times as high as they ever were for crypto, the bank said, citing Google<\/a> Trends data, while it also finds that S&P 500 companies mentioned \u201cAI\u201d over 3,300 times in their earnings calls this past quarter.<\/p>\n

Stock valuations overall have soared alongside the\u00a0\u201cMagnificent Seven\u201d\u00a0tech firms, which collectively comprise a third of the S&P 500\u2019s market cap. (The most magnificent: Nvidia<\/a>, now the world\u2019s most valuable company at a market cap exceeding $4 trillion.) Yet Deutsche Bank points out that today\u2019s top tech players have healthier balance sheets and more resilient business models than the high flyers of the dotcom era.<\/p>\n

\"\"<\/p>\n

By most ratios, the bank said, valuations \u201cstill look more sober than those for hot stocks at the height of the dot-com bubble,\u201d when the Nasdaq<\/a> more than tripled in less than 18 months to March 2000, then lost 75% of its value by late 2002. By price-to-earnings ratio, Alphabet and Meta<\/a> are in the mid-20x range, while Amazon and Microsoft<\/a> trade in the mid-30x range. By comparison, Cisco surpassed 200x during the dotcom bubble, and even Microsoft reached 80x. Nvidia is \u201conly\u201d 50x, Deutsche Bank noted.<\/p>\n

Those data centers, though<\/p>\n

Despite the relative restraint in share prices,\u00a0AI\u2019s real risk may be lurking away from its stock-market valuations, in the economics of its infrastructure. Deutsche Bank cites a blog post by Praetorian Capital<\/a> \u201cthat has been doing the rounds.\u201d The post in \u201cKuppy\u2019s Korner<\/a>,\u201d named for the fund\u2019s CEO Harris \u201cKuppy\u201d Kupperman, estimates that hyperscalers\u2019 total data-center spending for 2025 could hit $400 billion, and the bank notes that is roughly the size of the GDP of Malaysia or Egypt. The problem, according to the hedge fund, is that the data centers will depreciate by roughly $40 billion per year, while they currently generate no more than $20 billion of annual revenue. How is that supposed to work?<\/p>\n

\u201cNow, remember, revenue today is running at $15 to $20 billion,\u201d the blog post says, explaining that revenue needs to grow at least tenfold just to cover the depreciation. Even assuming future margins rise to 25%, the blog post estimates that the sector would require a stunning\u00a0$160 billion in annual revenue from the AI powered by those data centers just to break even on depreciation\u2014and nearly $480 billion to deliver a modest 20% return on invested capital. For context, even giants like Netflix<\/a> and Microsoft Office 365 at their peaks brought in less than a fraction of that figure. Even at that level, \u201cyou\u2019d need $480 billion of AI revenue to hit your target return \u2026 $480 billion is a LOT of revenue for guys like me who don\u2019t even pay a monthly fee today for the product.\u201d Going from $20 billion to $480 billion could take a long time, if ever, is the implication, and sometime before the big AI platforms reach those levels, their earnings, and presumably their shares, could take a hit.<\/p>\n

Deutsche Bank itself isn\u2019t as pessimistic. The bank notes that the data-center buildout is producing a greatly reduced cost for each use of an AI model, as startups are reaching \u201cmeaningful scale in cloud consumption.\u201d Also, consumer AI such as ChatGPT and Gemini is growing fast, with OpenAI saying in August that ChatGPT had over 700 million weekly users, plus 5 million paying business users, up from 3 million three months earlier. The cost to query an AI model (subsidized by the venture capital sector, to be sure) has fallen by around 99.7% in the two years since the launch of ChatGPT and is still headed downward.<\/p>\n

\"\"<\/p>\n

Echoes of prior bubbles<\/p>\n

Praetorian Capital draws two historical parallels to the current situation: the dotcom era\u2019s fiber buildout, which led to the bankruptcy of Global Crossing, and the more recent capital bust of shale oil. In each case, the underlying technology is real and transformative\u2014but overzealous spending with little regard for returns could leave investors holding the bag if progress stalls. <\/p>\n

The \u201carms race\u201d mentality now gripping the hyperscalers\u2019 massive capex buildout mirrors the capital intensity of those past crises, and as Praetorian notes, \u201ceven the MAG7 will not be immune\u201d if shareholder patience runs out. Per Kuppy\u2019s Korner, \u201cthe megacap tech names are forced to lever up to keep buying chips, after having outrun their own cash flows; or they give up on the arms race, writing off the past few years of capex \u2026 Like many things in finance, it\u2019s all pretty obvious where this will end up, it\u2019s the timing that\u2019s the hard part.\u201d<\/p>\n

This cycle, Deutsche Bank argues, is being sustained by robust earnings and more conservative valuations than the dotcom era, but \u201cperiodic corrections are welcome, releasing some steam from the system and guarding against complacency.\u201d If revenue growth fails to keep up with depreciation and replacement needs, investors may force a harsh reckoning\u2014one characterized not by spectacular innovation but by a slow realization of negative returns.\n<\/p>\n

Fortune Global Forum returns Oct. 26\u201327, 2025 in Riyadh. CEOs and global leaders will gather for a dynamic, invitation-only event shaping the future of business. Apply for an invitation.<\/a><\/p>\n","protected":false},"excerpt":{"rendered":"Deutsche Bank analysts have been watching Amazon Prime, it seems. Specifically, the \u201cbreakout\u201d show of the summer, \u201cThe…\n","protected":false},"author":2,"featured_media":3966,"comment_status":"","ping_status":"","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[20],"tags":[220,218,219,4682,61,60,123,80],"class_list":{"0":"post-3965","1":"post","2":"type-post","3":"status-publish","4":"format-standard","5":"has-post-thumbnail","7":"category-artificial-intelligence","8":"tag-ai","9":"tag-artificial-intelligence","10":"tag-artificialintelligence","11":"tag-deutsche-bank","12":"tag-ie","13":"tag-ireland","14":"tag-markets","15":"tag-technology"},"_links":{"self":[{"href":"https:\/\/www.newsbeep.com\/ie\/wp-json\/wp\/v2\/posts\/3965","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/www.newsbeep.com\/ie\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/www.newsbeep.com\/ie\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/www.newsbeep.com\/ie\/wp-json\/wp\/v2\/users\/2"}],"replies":[{"embeddable":true,"href":"https:\/\/www.newsbeep.com\/ie\/wp-json\/wp\/v2\/comments?post=3965"}],"version-history":[{"count":0,"href":"https:\/\/www.newsbeep.com\/ie\/wp-json\/wp\/v2\/posts\/3965\/revisions"}],"wp:featuredmedia":[{"embeddable":true,"href":"https:\/\/www.newsbeep.com\/ie\/wp-json\/wp\/v2\/media\/3966"}],"wp:attachment":[{"href":"https:\/\/www.newsbeep.com\/ie\/wp-json\/wp\/v2\/media?parent=3965"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/www.newsbeep.com\/ie\/wp-json\/wp\/v2\/categories?post=3965"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/www.newsbeep.com\/ie\/wp-json\/wp\/v2\/tags?post=3965"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}