Is There Already Too Much AI Computing Power?

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Luke Vargas (0:33)

AI stocks sell off worldwide ahead of US jobs data. Plus, we'll catch up with our advertising editor to hear about the technological tumult facing the industry and its workforce.

Suzanne Vranica (0:44)

You have the creative agencies thinking they're going to be disintermediated. Now you have the buying agencies that are all sitting around saying, oh my God, programmatic automated ad buying, we thought that was a hurdle. Now we're thinking machines are going to talk to machines and do all this work.

Luke Vargas (0:58)

And Russia strikes back against Ukraine with one of its largest missile barrages since the start of the war. It's Thursday, July 2nd. I'm Luke Vargas for The Wall Street Journal. And here is the AM Edition of What's News, the top headlines and business stories moving your world today.

US stock futures are in the red as we near the end of a shortened trading week and ahead of a closely watched June jobs report due out at 830 a.m. Eastern. Investors are bracing for potentially strong hiring numbers that could raise the odds that the Fed may need to raise interest rates in the short term.

Meanwhile, yesterday's tech stock slump carried over to Asia overnight, triggering a pullback in the Nikkei and leading regulators in Korea to once again step in to calm trading during another sell-off in the country's chip stocks. Korea's benchmark KOSPI index closed the day down almost 8 percent, while the tech-heavy KOSDAQ, where trading was briefly halted, ended the session off around 7 percent. One trigger of the pullback, both in Korea and amongst some AI-focused cloud providers in the US, was report that Meta planned to enter the cloud business to sell excess AI computing power. That caused Meta stock to jump off hours, but reporter Sherry Queen in Singapore told me that it raised alarm elsewhere.

Sherry Queen (2:19)

There have been a lot of fears about AI overspending by the MAX 7, and when these companies will produce a return on that investment, the AI readily is really built on the belief that there is infinite demand and sustained supply shortage. This latest Meta report just really raises the question that, what if hyperscalers are building more compute than they can use profitably?

One analyst just told me that hyperscalers now may be preparing for a world where they have to monetize access capacity rather than just keep building and keep spending at any price. Another reason what has driven the heavy tech losses is because AI trade positioning is getting really crowded. Investors are pouring money into the exact same stocks, the Mac 7, the hyperscalers, the Asian Semiconductor companies. And these concerns are especially amplified in North Asian markets, particularly South Korea.

Luke Vargas (3:22)

Just on the compute situation here, Sherry, it almost sounds like there's a secondhand market opening up for a product that previously people or corporations were only buying new at Tag, shall we say?

Sherry Queen (3:35)

Yeah, I think your analogy of a secondhand market is correct. So at first, people were really bullish on the AI computing demand. And with the AI infrastructure, builders in Asia couldn't catch up with demand. They think we have to be more and more. And now the meta news just shows that maybe that's not the truth. Well, the hyperscalers still face supply constraints in the short term. They may not last forever. And the AI infrastructure builders need to prepare for that. And investors are just a step ahead. They are trying to hedge that risk.

Luke Vargas (4:13)

That was the Journal's Sherry Queen in Singapore.

And adding a note of caution to the AI buildout this week is financial crisis hero Michael Barry of The Big Short fame, who's doubling down on bets that the hype around AI is souring. Since last year, he's taken bearish bets on the likes of Tesla, chipmaker Applied Materials and an ETF tracking semiconductor makers. And following Samsung and SK Hynix's announcement this week of plans to invest more than a half a trillion dollars into a new AI chip hub, he wrote on Substack that, quote, I see that as the beginning of an end. Barry has also added to a months-long short of NVIDIA. Barry and the companies he said he's shorting didn't return requests for comment.

After years of battling with the European Union, Alphabet's Google has lost a bid to overturn its biggest ever EU antitrust fine. The EU's Court of Justice this morning upheld the more than four and a half billion dollar fine, which was levied after regulators alleged that Google unfairly used its dominance to make sure that traffic on Android devices went to its own search engine. Back in the US, Alibaba and a US-based payments processor have agreed to pay $600 million to settle DOJ allegations that they allowed merchants to sell and import illegal pharmaceuticals and other restricted items into the US. The operator of Chinese e-commerce site alibaba.com admitted that it failed to prevent around 80,000 sales from merchants between 2016 and 2024 Undercover law enforcement officials found they were able to buy contraband pharmaceuticals and counterfeiting equipment on dozens of occasions. Meanwhile, the DOJ and 17 states have reached settlements with three major egg providers to resolve allegations that they illegally colluded for years to inflate prices, including when eggs hit record highs last year. Neither CalMain Foods, Versova, or Hickman's Egg Ranch admitted wrongdoing, but under the settlements, they're on the hook for $3.3 million to be paid to the states and 53 million eggs which will be donated to food banks and nonprofits.