A Rock and A Hard Place

Not investing is hard. A dollar you didn't invest in the S&P 500 20 years ago would be worth less than 1/5th of a dollar that you had invested. That’s a lot of risk for doing nothing. The same is true going forward. A dollar invested today in something will be worth five times a dollar not invested in that something 20 years from now. Lamplighter's made this point before.

For Google, that "something" is AI. Last week, Lamplighter talked about Google's decision to shell out $75 billion in capex in 2025. That's double what it spent last year and triple what it spent the year before. Lamplighter focused on one way it might work out: if it shifts spending from its P&L to its balance sheet. It’s an avenue for Google to gain production in the long-term by investing AI money upfront.

But what if it didn't invest? What if, instead, it pumped the breaks on AI? What if it sent that money back to shareholders instead?

Plenty of companies make this decision. Plenty of companies in the Lamplighter portfolio tout their shareholder cred by buying back stock and paying dividends. Some companies have even made this decision about AI.

Sometimes, that turns out great. Other times, though, that decision not to invest looks cringe.

Missed the boat

In 1975, Steve Sasson put on some groovy tracks and went on a far-out journey in his research lab. He came up with a way to record images without film. He did this at Kodak.

Kodak had pioneered color photography. It ruled the film world. The primitive digital tech was OK. The filmless (digital) camera was heavy. The picture quality was poor. Management never got behind the product. Kodak—the innovator—went bankrupt in 2012. You can trace its demise directly to its decision not to get behind digital photography.

Kodak isn't the only one looking foolish. Intel is struggling today largely from its resistance to go all-in on just making chips rather than making chips that they also design. Corporate history is littered with the bodies of businesses whose fate turned on their decision not to bet the company.

Investing $75 billion into AI is risky. There's a chance it doesn't work out. There's a chance Google doesn't get a return on that investment. But not investing $75 billion into AI is also risky. Google might become the next Kodak or Intel.

The investment keeps Google at the forefront of AI. And it can always make a different choice next year. It could go back to its old level of spending. It's investing this money from cash it earns on its business today. It's not going on a borrowing binge to get it done. That debt piece and the need to pay it all back on someone else's schedule is what made the 2000s telecom bust so crushing.

Smooth sailing

The AI prize is likely something like mechanized agriculture. In the distant past, half of Americans worked on farms. Today it's about 1%. That's still a lot of workers. It's just less common. And today's farm workers run circles around their ancestors. Today's farmers produce much much more food. That industry frees up the rest of us to work on other humanity-expanding adventures, like AI or Tik Tok dances. Whatever you like.

AI is already enabling workers to do a lot more with less. This goes for programming. It goes for investment research. That doesn't mean AI won't come with social and economic problems, but it'll solve more problems than it creates. The ones that it does solve will fade into the background of human memory. Someday our great great grandchildren will telepathically tease the robotic vessels that house our preserved consciousness how silly it was that we had to write our own articles. The bet keeps Google in the AI conversation, keeps it out of the Kodak graveyard and gives it the chance to keep pushing the frontier.

Disclaimer: None of this is investment advice. It's meant to illustrate ways LCM thinks about investing. Things that LCM decides are good investments for LCM and its clients are based on many criteria, not all of which are covered here. Some or all of LCM's ideas may not be suitable for other investors. LCM does not recommend investing either long or short any position mentioned. LCM may own positions in some of the companies mentioned. Some of its ideas will lose money — investing entails risk. See full disclaimer here.