$109 billionThat’s how much Americans spent on lottery tickets last year, which is more than they spent on movies, books, concerts, and sports tickets combined.
This Wednesday, May 20, at 12:30 p.m. ET, Ed debuts a new presentation exclusively for Prof G+ subscribers. He’ll cover how loneliness is producing the next generation of billion-dollar businesses, how the “inheritocracy” is rewriting the rules of economic mobility, and the erosion of “brand America.” Subscribe here for access.
Could Inflation Be What Finally Bursts the AI Bubble?For the first time in three years, American wages are not keeping pace with inflation. Two new inflation reports last week painted a discouraging picture: Consumer prices rose 3.8% in April from a year ago, marking the highest inflation reading in three years, and producer prices, which measure wholesale inflation, climbed 6% year over year. That was not only hotter than expected, but the biggest increase since 2022.
The conflict in Iran is partly to blame. Higher energy prices accounted for over 40% of the total increase in inflation last month. Nationally, gas costs more than $4.50 per gallon, up more than 40% from a year ago. Despite increasing prices, overall consumer spending stayed resilient; however, the most recent University of Michigan consumer survey showed sentiment has plunged to the lowest level on record going back to 1952. Why? According to Federal Reserve economists, consumers put more weight on higher prices than on higher incomes when assessing their current economic conditions. Inflation is also influencing how Americans view the president. President Trump won reelection in 2024 in large part because of his promise to reduce prices, but now his approval on how he’s handling the economy is worse than President Biden’s ever was
We are underestimating the impact that lower consumer spending could have on the stock market. This is what happened in 2022. Consumer spending growth fell 70%, and suddenly because consumers didn’t have as much money to spend, advertisers decided to stop spending too. This was what really killed the tech sector in 2022, which by the way, fell around 30% that year — a bigger drop than the S&P, which fell around 20%. These companies are still very dependent on advertising as a business. Advertising makes up 97% of Meta’s revenues; for Google, it’s about 75%. These companies still need regular people to spend money such that advertisers go out there and buy ad inventory. To summarize, inflation had a material impact on consumer spending, which had a material impact on advertising budgets, which had a material impact on the businesses of Big Tech. This feels very much like what could happen this year. The entire market is dependent on the capex guidance of a few tech companies that happen to get their cash from digital advertising.
The narrative Ed outlines is a logical one, but there are two reasons why I disagree. First, the AI companies are gonna spend tens of billions of dollars on marketing, and that’s money that didn’t exist three years ago. OpenAI and Anthropic are in a celebrity death match, and in the next 12 or 24 months, I think some marketing executives will talk Dario and Sam into spending $10 billion on branding. In addition, we’re about to see the most obnoxious, unhealthy, antidemocratic tsunami of money going to the midterm elections. For example, two or three years ago, Andreessen Horowitz spent $0 on elections. This year, they’re gonna spend $115 million. All this spending is going to flow through podcasts, print ads, direct mail, and local news stations. So I’m actually less bearish on the ad market than Ed is.
Cerebras Keeps the Chip Rally Going With the Biggest IPO of the YearAI chipmaker Cerebras pulled off the biggest IPO of the year so far. Shares were priced at $185, but opened at $350 – an 89% pop. That’s the biggest since 2000 for a listing raising more than $2 billion. On Friday, the day after the IPO, Cerebras shares declined 10%. Cerebras’ market cap is now more than $60 billion. On just $510 million in revenues, it’s trading at a price-to-sales multiple far above its competition.
It’s hard to imagine a better time to IPO as a small, unprofitable chip company. The Philadelphia Semiconductor Index (PHLX) is up more than 150% over the past year, and now, semiconductor stocks account for more than 15% of the S&P 500.
Still, Cerebras doesn’t have it easy. Breaking into the highly competitive chip market means taking on Nvidia, which still dominates with 85% market share. In fact, Nvidia’s AI chip business is more than 400x larger than Cerebras’ and is growing almost as quickly. However, Cerebras products are meaningfully different: Unlike most postage-stamp-sized semiconductor chips, Cerebras’ are about the size of dinner plates. For context: 57 H100s (Nvidia’s premium GPUs) can fit onto each one. Their size, in addition to other, more complex factors, makes them more powerful than traditional GPUs. Most AI workloads are powered by groups of chips strapped together. Some chips handle memory, while others handle processing. With Cerebras, all of that happens on the same chip, making them, reportedly, 15x faster than other GPUs for standard tasks.
Last year, Scott and I discussed this company and we pointed out that they were getting 85% of their revenue from G42, which is this UAE state-backed AI firm. Investors agreed that this was risky, and there was scrutiny from CFIUS, The Committee on Foreign Investment in the United States. They ultimately got cleared, and this year, they said, don’t worry, we’ve reduced our G42 revenue exposure to 24%. But 62% of revenue now comes from Mohamed bin Zayed University of AI — another UAE state-backed entity, which means 86% of their revenue is still coming from one customer, which is the sovereign wealth fund of the UAE. So they didn’t fix the problem, and the part that really bugs me is that they’re lying about it. The finances aren’t great either. Revenue doubled, but in AI, that’s not that impressive. The exciting part, supposedly, is OpenAI. They have a deal where OpenAI deploys 750 megawatts of Cerebras chips — at full capacity, that’s roughly $7 billion in annual revenue, more than 13x their 2025 total. However, they have an exclusivity agreement in there, which says that you can’t sell your chips to these other competitors. The real issue is who Cerebras is asking investors to trust. The stock only makes sense if OpenAI pays. And if Altman is who they say he is (a serial liar), that’s not a bet I’d make.
I f*cking hate this company. And it’s not just revenue mix; it’s the quality and incentives of the customer base. Both customers are UAE government entities. When I sold L2 and Prophet, the reason we got extra turns on revenue was customer quality. We had Nike, P&G, Toyota — quality companies as clients. That’s what institutional buyers want to see. This is the opposite. This is Pets.com out of the UAE.
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The $200 Date and the Free AI Girlfriend: Why Young People Are Opting OutThe romantic recession isn’t letting up. Recent earnings from Match Group and Bumble showed continued weakness in dating apps, with paying users declining across the board. Match Group’s total paying users fell 5%, while Bumble’s dropped 21%. Young people just aren’t dating. Only 31% of young adults — a quarter of women (26%) and 36% of men — regularly go on dates. Even more troubling, only about half of young, single adults are interested in starting a relationship. One problem? Romance has gotten expensive. According to a survey from BMO’s Real Financial Progress Index, the average cost of a date in the U.S. has climbed nearly 13% year over year, to $189. Nearly half of single Americans say dating is no longer financially worth it.
But the romantic recession starts even before the financial challenges of adulthood. In 2024, only 46% of high school seniors said they ever went on dates, down from nearly 90% in the 1980s. Now, only 56% of Gen Z enter adulthood having engaged in a romantic relationship, compared with 75% of members of older generations.
The elephant in the room is AI. Specifically, young men being slowly sequestered from real relationships into frictionless ones with Character AI and porn. When they’re speaking to an AI girlfriend or absorbing porn, they never feel rejected, they never feel insecure. I mean, we’ve all had those feelings. We’ve all texted people and not heard back and wondered, what did I do wrong? We’ve had our hearts trampled on. It sucks, and now AI tells you that you can have a reasonable facsimile of life without any friction. And it is such a hollow, empty promise. The most rewarding things in life are relationships, but you have to endure rejection, persevere, figure out what a woman wants … Frankly, it’s just very difficult. And that’s why it’s so wonderful. On the economics of dates, I think men should pay. When a woman who is of childbearing age is spending time with you, quite frankly, her time is more valuable than yours. In addition, she spent $400 on her appearance before she even showed up. But it’s not just paying for everything; it’s demonstrating excellence and effort. Unfortunately, impressing a woman in a capitalist age with Instagram has become all about money. What I would offer to men is: You can replace money with effort. Think of something cool to do, and even if it’s cheap, you come across as cultured, like you know what’s going on.
I saw this clip recently go viral in which this YouTuber Mike Majlak was asked how much he spends on his dates. And obviously this isn’t representative of everyone, but he said $700 to $800. That isn’t normal. It also isn’t cool. But the trouble is when you see more and more of these clips, which go viral because they’re so absurd, I think it’s starting to make people think that it is normal to spend thousands of dollars on a date. People want to be like these famous influencers, and it affects both men and women. Women start to expect it: He didn’t spend enough money on this date. I saw this clip of this guy spending thousands of dollars. Clearly this guy isn’t a baller; clearly he doesn’t respect me enough. And then the same thing goes for men: They start thinking I need to spend thousands of dollars on this date because real men do, so I’m a loser if I don’t.
Cerebras will be below $50/share in 12 months.
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