The long view has changed hands
While politics chases the daily headline, a handful of companies are big enough to move national economies. What does that mean for the rest of us?
A little paradox that is occupying my mind at the moment. The conventional view is that the private sector is dominated by short-term thinking - profits over people, next quarter’s targets, stock market expectations. Long-term thinking is the realm of governments - infrastructure, foundational questions of health and education, industrial strategy. Has AI inverted those perspectives?
The stock market today is dominated by trillion-dollar giants: Amazon, Alphabet, Apple, Meta, Microsoft, Nvidia, SpaceX. One thing these companies have in common is long-term thinking. Massive investments in AI are an extension of this mindset, not a change. This post, Alphabet is Berkshire Hathaway 2.0, gives a good overview of one piece of that history.
There has been an explosion in retail investing leading to hordes of day traders and meme stocks. Yet short-term quarterly numbers have never had a smaller role in the market cycle.
Politics is not like that. Public debate is dominated by the shortest of short-term considerations. Policy is made according to daily news headlines and social media crazes.
Meanwhile, pressure on government finances and a forest of regulation have pushed investment in infrastructure further and further down the agenda. Vital public services in health and education are visibly decaying.
The debate on health spending is like watching the internal battle of a split personality. An annual budget squeeze is accompanied by claims that we are spending more than ever before while the real challenges shift from short-term needs to long-term trends driven by demographics, GLP-1s and the potential of AI.
The balance of government and private is already starting to move. In some countries, the AI numbers are now so large they overwhelm the national economy. Samsung and SK Hynix tax revenues could pay down over 50% of South Korea’s public debt in the next 3 years.
How important is TSMC to Taiwan or ASML to the Netherlands? ASML’s market cap is 51% of Dutch GDP and TSMC’s is 246% of Taiwan’s.
These are smaller countries but they are all substantial developed economies, closely integrated into the world’s economy and trade.
Are they driven by their governments or the giant companies that call them home? In the past, the risk of a company that big would have been short-termism. Now it looks like a strategic advantage.
Does any of this matter for your business? Outside of the AI bubble, every business I talk to feels squeezed. That is a symptom of an economy where government plays a huge role and every part of the public sector is under pressure.
It is tempting to drive your business in response to that short-term challenge. Maybe that misses the long-term whales that are hoovering up the short-term plankton around them?
I've been anti quarterly reporting for a long, long time due to its drive to short-term thinking. I remember Alphabet (then still called Google) trying argue that they should report annually. Companies that rely on deep scientific research such as TSMC and ASML clearly need to look to the long future. AI investment doesn't quite match that, with a portion being spent on true research, while much of the data centre build out is "buying Digial Lettuce" as the wonderful David McWilliams said recently. The mentality that science and engineering R&D is somehow dirty and a purely a cost has dominated financial thinking far too long - another toxic legacy of the Reagan/Thatcher era.