🎯 AI is a two horse race

Welcome back to another issue of Trendline!

We are looking at the latest data on AI arms race, and how tariffs are impacting different companies, sectors and consumers.

1) AI is a two-way race between US and China: Looking at the geographic distribution of frontier AI models released, the AI race is increasingly looking like a two-way race between US and China. Europe and other countries are far behind.

Reminds me of the space race of the 60s b/w US and USSR. US won that putting its flag on the moon. Who will win the AI race?

2) Electricity demand for data centers is projected to increase substantially: One direct fallout of the AI race is going to be a surge in electricity demand to run the data centers that power the AI models. Current base case model from IEA suggest almost a ~137% increase in electricity consumption from 400 Twh worldwide currently to almost 950 Twh by 2030. Most of the increase is expected to come from US and China, the two frontrunners in the AI arms race.

3) Foreigners are staying away from US: Since the beginning of Trump presidency, non US citizens passing through major US cities have declined (~upto 10% YoY decline in April). An overall negative shift in the sentiment towards US due to the ongoing trade war, as well many incidents of travelers, including green card holders, of being harrassed at the US border are causing travelers to stay away from US.

Expect the tourism industry in US to be hit badly, including major hotel and airline businesses.

4) Meta’s exposure to the US-China trade war: Upto 10% of Meta’s global revenue is from Chinese online ad clients. 29% of Meta’s revenue is from North America, so if these Chinese ad clients (lot of it ecommerce) have to pull back from spending in US markets due to the trade war, Meta can see a top line hit of up to 3% and more importantly a growth slowdown. With rising investments in AI, free cashflows can be severely impacted.

5) Americans are pulling back on discretionary spend: “Four in five Americans have cut back on purchases in at least one category, including 75% who cut back on non-essential categories, according to the latest CNBC|SurveyMonkey Your Money poll.

Of the non-essentials being sacrificed, eating out (59%) is the most common cut”.

Important Disclaimer: The content in this newsletter is for educational and informational purposes only and should not be considered financial or investment advice. Always do your own research or consult a professional before making financial decisions.