Doug Kass: From AI to Alternative Energy, Government Piles in... Right at the Top
Remember Solyndra? Now Project Stargate... and maybe even Bitcoin too. There are a lot of bad investors in the world, but none of them light money on fire like governments.
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There is an old saying, if someone says "I am from the government, and I am here to help, run!"
There is no worse allocator of capital than the U.S. government. They should not be in the investing business. Yet it happens with every administration, and all they do is light money on fire.
Every administration seems to pile in to what is cool at the moment, or what favors their big donors. Not only do they light the money on fire, the new administration also tends to cancel what the last administration was doing.
The latest in the AI frenzy is Project Stargate. Yay! In sum, Sam Altman and Donald Trump may be two peas in a pod. I set over/under on those guys getting along at under six months.
Meanwhile, Elon Musk is launching grenades at the whole initiative (which doesn't even have the money) from DOGE HQ. If Musk has his way, that is the first thing DOGE will, and should cut.
While it seems unwise on the surface to fight government policy, it may be more wise than people think. Fighting both government policy and government investment may be the wisest thing of all. Governments seem very good at piling in, right at the top.
What we just went through with alternative energy is a great example. I think not only the U.S. government, but governments globally.
The whole thing has been an unmitigated disaster. Remember the money the U.S. government flushed down the toilet on Solyndra?
Even with the global push to alternative energy, the stocks themselves have been an utter mess after the initial frenzy. For several reasons. The valuations were pushed to absurd levels that the businesses could never grow into, the underlying fundamentals of these businesses and the industry were never good, never economic, and never worked well, and because of all the capital that flooded into the space, there was ultimately too much competition, which destroyed pricing for everyone.
AI now is more "dis-economic" than alternative energy ever was. I don't recall any of the alternative energy businesses losing money at the auspicious rates open AI is.
Remember First Solar FSLR? The wind companies? All of it. Compete and utter failure, even with governments globally pushing this stuff for the last 15 years. It defies belief that businesses and equities could fail with every government globally standing behind them, but fail they did.
I think about the only successful stock has been Tesla TSLA, but that is its own animal. However, this stuff has also been a disaster for every other single auto company that was forced to invest in it, or chose to invest in it. It has been a massive destroyer of capital.
Now it is all being cancelled:
And we are on to the next. AI with Project Stargate. Maybe even Bitcoin too. These government initiatives seem more like they mark tops than they mark the start of something new. There are a lot of bad investors in the world, but none are worse than governments. They pile in at the top more than retail. And at least retail is smart enough to use short-dated call options to limit the amount of money they can flush down the toilet!
Interesting too. Amazon AMZN is having a real hard time making this stuff work. Amazon is about as well funded and as well resourced as anyone. When you see something like “no solid release date, not rolling out anytime soon” — that speaks volumes. My two cents, if it is not working well yet, it will never work well. Nothing is really changing. All they are doing is throwing more processing power, more electricity, and more water (cooling) at an underlying technology that does not work well and does not scale. And the water would be better left in the empty reservoirs in California anyway!
Is AI in DeepSeek?
And per my point about the government top ticking things, about five minutes after Project Stargate was announced, this Chinese AI happened.
If this is right, it looks like the Chinese found a way to do the same thing with a quarter of the Nvidia NVDA chips, and thus power. Chip projections will be grossly overstated, as are projections for power consumption, which is good. The couple hundreds of $billions that U.S. companies spent over the last few years will have been mostly wasted, although in my view a lot of that investment will have been wasted anyway regardless of what the Chinese may have done.
Just like with alternative energy, this was inevitable. A dis-economic product offering, capital floods the space, technology changes over time but never works great or becomes more economic than existing alternatives, etc.
It is somewhat ironic that the AI overlords are now clamoring for nuclear power (which is going to make a comeback regardless), and nuclear power is something the alternative energy overlords banned. Nuclear power was the cheapest, best and most economic option to begin with. And the same can be said for a simple internet search, as opposed to asking a gen AI tool to do it, and lose a lot of money producing a result that is often full of hallucinations and needs to be double checked.
Finally, this is another good point (and something that I have brought up repeatedly). All those lenders that took chips as collateral for their loans. OOPS! this could only end one way.
This commentary was orginally posted in Doug's Daily Diary on TheStreet Pro.
At the time of publication, Kass had no positions in any securities mentioned.
