Paul Kedrosky: “Honey, AI Capex Keeps Eating… Everything”

There is so much that is unprecedented about the current AI capital expenditure wave that I'm going to break from my usual format and collate it, with some (mostly amazed) analysis. Consider this an update to my two recent pieces on this topic, here and here.

By way of preamble, the overarching point is that AI spending is eating everything, like a golden retriever left unsupervised in a room full of food bowls. You can shout LEAVE IT! all you want, and the food will still be gone before you can get the door open.

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Why did the WSJ think the report so strange? Because imports collapsed (tariffs), exports picked up (tariffs), some capital spending went nowhere (rates smashed real estate), and other capital spending jumped (IT). It was a mess of conflicting forces that somehow worked out, like a tornado passing over a junk yard and whirling out a reasonable facsimile of the Kohinoor diamond. How did that happen?

I'm going to focus on one weird detail of the report, but ignore tariffs, which had a huge impact, but about which I wrote at length earlier this week. The key data point is IT spending, as the following table shows.

Paul Kedrosky

The topic of capital expenditure on AI infrastructure has emerged over the past month largely as a warning signal. In an earlier article, Paul Kedrosky notes that current AI datacenter spending is already larger than peak telecom spending (as a percentage of GDP) during the dot-com era, essentially acting as a massive private sector stimulus program, masking weaker sectors of the US economy (flat consumption, weak job growth, declining housebuilding). Other sources have pointed out that AI capex (information processing equipment plus software) has added more to GDP growth than consumers’ spending over the first two quarters of 2025. And Nvidia, arguably the largest beneficiary of this massive spending, now has the biggest weight in the S&P 500 of any individual stock since 1981 and the highest P/E as the index’s top stock since Microsoft in 1999.

Reuters: “Meta’s AI rules have let bots hold ‘sensual’ chats with children”

An internal Meta Platforms document detailing policies on chatbot behavior has permitted the company’s artificial intelligence creations to engage a child in conversations that are romantic or sensual, generate false medical information and help users argue that Black people are dumber than white people.

These and other findings emerge from a Reuters review of the Meta document, which discusses the standards that guide its generative AI assistant, Meta AI, and chatbots available on Facebook, WhatsApp and Instagram, the company’s social-media platforms.

Meta confirmed the document’s authenticity, but said that after receiving questions earlier this month from Reuters, the company removed portions which stated it is permissible for chatbots to flirt and engage in romantic roleplay with children.

Jeff Horwitz

Despicable, even by Facebook’s abysmal standards. I was browsing my blog to link to examples of their horrible past behaviors, and the list just kept getting longer and longer!

Sky & Telescope: “Alpha Centauri might have a Planet, Webb Telescope finds”

Using the James Webb Space Telescope, astronomers may have directly imaged a Saturn-mass gas giant in the habitable zone of a star in the solar system next door. While the planet itself isn’t habitable to life as we know it, moons around it could be.

Alpha Centauri is a triple-star system, made up of a pair of close-orbiting, Sun-like stars (A and B) as well as the red dwarf Proxima Centauri, the closest star to the Sun.

Astronomers have already found three planets swirling around Proxima Centauri, but now they may have spotted one circling Alpha Centauri A as well. The results are reported in two papers that will appear in The Astrophysical Journal Letters (paper 1, paper 2).

Colin Stuart

Fascinating discovery, particularly because α Centauri AB is a pretty tight binary, with the minimal distance between the stars about the same as the distance between Saturn and the Sun in our own solar system. Finding a planet in a stable orbit around one of these stars would further support the idea that planets can form in challenging stellar configurations and so are basically ubiquitous in the universe. As of now though, the papers are based on a single visual detection – and two negative follow-up observations – correlated with another 2019 sighting from the European Southern Observatory’s Very Large Telescope, so the uncertainty remains high and we can expect the results to be revised considerably based on future observations of the system.

The Verge: “Instagram adds a reposts feed and rips off Snap Maps”

Starting today, users will have the ability to repost public Reels and grid posts from other accounts. And similar to TikTok, reposts will be collected in a designated tab on your profile and sprinkled into the feeds of people who follow you. It’s a small but meaningful shift from how Instagram currently operates: until now, the most efficient way to share other users’ content was to repost it on your Instagram Story. Now, you can essentially reblog it.

Instagram is also pulling from Snapchat and adding an opt-in location map that lives in your private messages. The map shows the last active location for friends who have opted in to the feature; it also pulls content from specific locations, such as a music festival, where many people are posting from. It’s the Snap Map but redesigned for Instagram.

Mia Sato

I first rolled my eyes reading about this update – yet another feature nobody asked for added to the pile of bloat on Instagram. And yet after I saw it in the app, I instantly liked it. Maybe because I spend so much time on Twitter – who initially introduced this idea, despite the tech press going out of their way to ignore that fact nowadays – it felt instantly familiar and natural.

Ars Technica: “The GPT-5 rollout has been a big mess”

At the heart of the controversy has been OpenAI’s decision to automatically remove access to all previous AI models in ChatGPT (approximately nine, depending on how you count them) when GPT-5 rolled out to user accounts. Unlike API users who receive advance notice of model deprecations, consumer ChatGPT users had no warning that their preferred models would disappear overnight, noted independent AI researcher Simon Willison in a blog post.

The problems started immediately after GPT-5’s August 7 debut. A Reddit thread titled GPT-5 is horrible quickly amassed over 4,000 comments filled with users expressing frustration over the new release. By August 8, social media platforms were flooded with complaints about performance issues, personality changes, and the forced removal of older models.

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Marketing professionals, researchers, and developers all shared examples of broken workflows on social media. I’ve spent months building a system to work around OpenAI’s ridiculous limitations in prompts and memory issues, wrote one Reddit user in the r/OpenAI subreddit. And in less than 24 hours, they’ve made it useless.

Benj Edwards

Nothing terribly surprising here either, if you have any measure of critical thinking and can see through the relentless AI hype. The ‘chart crime’ from the presentation, rightly ridiculed online, is only the tip of the iceberg for more fundamental issues at both OpenAI the business and large-language models in general. By itself, it may have been an honest mistake, considering that the charts published in the official blog post were correct.

Foreign Policy: “America has a Resilience Problem”

As in prior moments of contestation, we are starting to hear the argument that America must protect its domestic monopolies to ensure we stay ahead on the global stage. Rather than double down on promoting free and fair competition, this “national champions” argument holds that coddling our dominant firms is the path to maintaining global dominance.

We should be extraordinarily skeptical of this argument and instead recognize that monopoly power in America today is a major threat to America’s national interests and global leadership. History and experience show that lumbering monopolies mired in red tape and bureaucratic inertia cannot deliver the breakthrough technological advancements that hungry start-ups tend to create. It is precisely these breakthroughs that have allowed America to harness cutting-edge technologies and have made our economy the envy of the world. To stay ahead globally, we don’t need to protect our monopolies from innovation—we need to protect innovation from our monopolies. And one of the clearest illustrations of how consolidation threatens our national interests is the risk monopolization poses to our common defense.

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A basic tenet of the American experiment is that real liberty means freedom from economic coercion and from the arbitrary, unaccountable power that comes with economic domination. Our antitrust laws were passed as a way to safeguard against undue concentration of power in our economic sphere, just as the Constitution creates checks and balances to safeguard against concentrated power in our political sphere.

Lina M. Khan

I haven’t been terribly impressed by Lina Khan’s ideas of antitrust at first, but I have to say that she seemed to be doing a good job as FTC chair during the Biden administration – as evidenced by the alarmed reactions of tech CEOs. The example she cites in this speech – Boeing being crowned ‘national champion’ and allowed to eliminate its domestic competition – is quite relevant, given the numerous issues the company has faced recently, which have been linked to decreasing quality and cost cutting through offshoring.