“AI Compute Futures” — Has Wall Street Gone Too Far?

0:00Mark Zandi:Exchanges on the M &A and IPO landscape. Exchanges on the dynamics affecting global trade. For the sharpest analysis on finance, business, and the economy, count on exchanges. The Goldman Sachs podcast. Listen now. Support for the show comes from KPMG. In any organization, disruption is inevitable, but struggling through it doesn't have to be. The KPMG Adaptability Index is your blueprint for building capabilities to handle what comes next. It uses real data to look at how your culture, strategy, and partnerships all work together to help your business thrive. Stop reacting and start adapting.

0:42Mark Zandi:Visit kpmg.com slash us slash adaptability to explore the Adaptability Index and Pulse surveys today.

0:54Excuses are easy. An epic movie night? We don't have enough snacks. Dinner party with the girls? We'd have to decorate. Surprise date night? Nothing to wear. But Amazon's Prime same-day delivery lets you say yes before the moment slips away. Try that new popcorn maker. Order those cheeky drink glasses. Get that new perfume. And turn that I wish we could into an I'm so glad we did. Visit amazon.com slash prime to find millions of items delivered fast. Same day delivery. It's on Prime. Available in select areas. Terms apply.

1:36Mark Zandi:Money market's mad. If money is evil, then that building is hell. The show goes on! The folks in there are watching the show! Welcome to Prof G Markets. I'm Ed Elson. It is August 13th. Let's check in on yesterday's market vitals. The S &P 500 climbed toward a fresh record following the latest inflation report. More on that in a moment. On Calci, the odds of a rate hike this year fell to 54%. Meanwhile, the Dow was roughly flat. Brent crude was relatively stable, as was the yield on 10-year treasuries. Coreweave shares rallied 19 % after doubling its second quarter revenue. And finally, SpaceX shares rose 10 % after Elon Musk posted a recording of a company all hands on X.

2:24Mark Zandi:In the meeting, Elon told employees that AI revenue will exceed all other SpaceX revenues by next month. Okay, what else is happening? Wall Street will soon be trading AI computing power like a commodity. The CME, one of the world's largest futures and options exchanges, announced yesterday that it will start launching compute futures in October. Each contract will represent one month's rent on an NVIDIA chip. The idea, in the CME's words, is to turn computing power into a, quote, standardized tradable commodity. This could give data center providers and AI companies both price transparency and the ability to hedge against swings in the cost of compute.

3:07Mark Zandi:but it all rests on two big questions. Number one, is compute actually a commodity? And number two, should we actually be trading it? Here to break this down, we're speaking with Rohan Goswami, business reporter at Semaphore. Rohan, this is the new future of AI. We're financializing it. We're turning it into a commodity. That's the new plan from the CME. What is your reaction to this? Does this make sense to you? Look, we wrote a story a few months ago, right? This is not a new thing, actually. This has been in the works for some time. Larry Fink made an oblique reference to it at Milken earlier this year, that compute was going to become a financialized resource.

3:49And you quickly saw a couple of data providers actually step up to try and create the infrastructure for the CME and for ICE to actually offer these as products. I think they like to say that it's like oil or it's like electricity. It's scarce. It's hard to transport. It's sort of diffuse. I don't know that I fully agree with that, if only because oil is not something—oil is actually finite, right? And so the idea that this is one-to-one with oil falls apart there a little bit. And it's also—again, I know you and Ed Zitrone have talked about this a lot. I know you've written about this a lot. it really boils down to what one player decides to do.

4:28And that's NVIDIA, right? If you think about the forward curve of an asset, you can basically, and for those who don't really understand that, that's the idea of like what direction month by month a commodity will trade in. So they can go up, they can go down, right? And if they go down, that's basically suggesting that in the future, things will become cheaper. So theoretically, you'd want to see a downward trending forward curve with compute futures, right? This is logical. As more chips make it into the marketplace, it becomes cheaper and easier for people to actually get their hands on compute.

4:57Of course, this isn't actually a free marketplace. It's entirely up to NVIDIA, right? The maker of these chips to actually determine the prices. And they are, one could argue, disincented from creating a world where there is A, price transparency, right? They don't actually want people to know how much this costs. And B, from actually making things cheaper because theoretically, as the cost of compute goes down, their chips become less valuable. Of course, there's more nuance to that. And I'm not, you know, certainly not you or Ed Zitrone level versed in this, but there are some sort of competing incentives here.

5:28And it also, I think, as you alluded to, raises a broader question, which is, do we want to financialize this stuff? Right. I know you talked about this yesterday, but this isn't the only way that Wall Street is starting to dip its toes really aggressively into a space that had kind of before been a closed loop.

5:42Mark Zandi:Right. So we'll get to the NVIDIA part in a moment because it's true. NVIDIA is such an important piece of this because this first contract that CME is going to release here is going to be on the H100 chip, which is NVIDIA's chip. But I just want to linger on the commodity piece of this for a moment. It seems like there is a lot of debate right now as to whether we can actually call AI compute a commodity like oil, like gold, like wheat, all of these commodities that trade on the CME. And it seems like one of the big issues is this idea that it isn't fungible. It isn't an identical commodity wherever you go, because there are different types of chips.

6:25Mark Zandi:Chips can depreciate over time. You know, one generation of chip might be worse and older and less sophisticated than another. To what extent do you think that is a problem? Or is that something that the exchanges can just figure out. The exchanges, to a degree, have kind of figured it out. If you're thinking about units of measurement for whatever it is, hot rolled steel is probably a good example, right? Not all steel is created equal. Some steel is crappy. Some steel is good. But generally, we've agreed to come together and say, okay, as an index and as a forward curve of a commodity, it is a essentially monolithic thing.

7:00And very few, if any, CME customers are taking custody of physical commodities, right? So I think the fungibility or the tangibility of it is less of an issue. And I think, look, there's actually real utility, as you pointed out, for hyperscalers or even for Frontier Labs. If they know that demand is going to ramp up over time or they want to manage their downside, there are actual end users here. But I think that, like, broadly speaking, the comparison, again, like, I hate to keep coming back to this, but it is not ever, in my opinion, going to be a real market. because it would be analogous to standard oil, right?

7:36If there was one company that basically controlled in its entirety the flow of oil. Now, you could argue that, of course, the OPEC countries kind of functionally do that, but there are a lot of countries that are not part of OPEC and don't engage in that, right? But here, there's no other game in town except for NVIDIA, right? So if NVIDIA's stated mission is to make chips less scarce, to bring more chips into the ecosystem, you're depending on them basically to set the price not just now, but down the road of this asset.

8:05Mark Zandi:Yes. And so it seems that this all relates to NVIDIA and more specifically to this$500 billion memorandum of understanding financing package that they announced with the Avengers of Wall Street, KKR, Blackstone, BlackRock, Goldman, et cetera. It seems as though this is the first step to legitimize AI compute, specifically NVIDIA compute, as a commodity that can be used as collateral to raise hundreds of billions, perhaps trillions of dollars of debt. Is that the gist of what's going on here? I think there's a fair read there, but I also think it's kind of, it's a risk spreading mechanism, right?

8:48If you think about the deals that NVIDIA has cut or said it will cut, right? Recall the$100 billion, again, memorandum of understanding and they signed with OpenAI. I don't even remember when that was, right? This has all been concentrated in this multi-trillion dollar juggernaut that is basically lending its balance sheet to companies that don't have credit ratings. Anthropic, OpenAI, Frontier Labs, hyperscalers. They're stepping in and they're saying, look, we are good for the money. Go ahead and buy our stuff. Now, if you are an NVIDIA shareholder, if you are a NVIDIA bondholder, if you are the US government, frankly, that at some point starts to make you really uncomfortable that all this risk is lying and is concentrated with one entity that is incented to behave like a monopoly, right?

9:29If you think about what NVIDIA is doing, they're subsidizing their chips at the expense of any potential new entrant and trapping these labs inside of their ecosystem. Now, this is functionally doing the same thing because, of course, NVIDIA isn't bringing all these guys together to go buy chips from a competitor, but it is at least spreading the financial risk around, but also the financial upside, right? If you think about what it does for a Goldman or a KKR or a Blackstone, it provides them exposure to this play without actually having to invest directly in this play. You are essentially wrapping the risk around NVIDIA's diligence, around their ability to design these fabs.

10:05If you are bullish about this space, it's great. You are partnering with someone who knows what they're doing, and all you're doing is being good for the money.

10:10Mark Zandi:Looking at this memorandum of understanding, whatever we want to call it, the$500 billion. Memorandums of understanding. Memorandums. As several have pointed out, it is not one cohesive vehicle. These are one-off vehicles that we don't really yet have much clarity on. Sorry. Yes. No, that is helpful clarification. Jensen Huang has said that this should assuage concerns about circular financing. The circular financing concerns, of course, being that these companies are kind of investing money into each other, and then those companies pay the money back to them, which then the original company books as revenue.

10:45Mark Zandi:And then we think that the whole economy is growing, but really the money is being recycled. This has been discussed a lot on this podcast, Jensen Huang says that this should make those concerns less of a concern or put them to bed. Does it? Should this? What do you think? I mean, I think, look, as the public markets and the private markets have started to look increasingly similar, so too have the risks associated in the public markets. And if you look at the S &P 500, I don't know off the top of my head what percentage gains have been propelled by NVIDIA and any sort of AI Jason trade, but it is completely fair to say that you are either an AI have or have not, and the have nots go like this right now, and the haves generally, lumpily, go like this, right?

11:29And the same is true in the private markets. If you look at the sales that are getting, the real sales, not the private-to-private stuff, it is stuff in and around AI. It is cooling systems. It is energy. It is land. It is actual data centers, right? Everything is an AI trade. And so at the end of the day, just because more people are financing it, it doesn't change the key man risk. I think about like, there was a company in the late 90s, right? That very famously went bankrupt later on, or was rather acquired, Lucent, right? Which had a massive backlog of orders, totally into the tens of billions of dollars.

12:01And they said, there's no need for anyone to be worried here. We are financing these things. We are helping people with these things. We are going to help our customers get here. Of course there's demand, right? Well, of course the dot-com bubble burst, all their customers went bankrupt and Lucent was left with this theoretical backlog of orders that actually amounted to nothing. Shareholders were wiped. It was acquired. It is one of those situations where I look at this and I go, well, there's no really avoiding this risk. Just because there are more players involved doesn't mean the actual risk has gone down.

12:27Mark Zandi:Yeah, our research associate, Dan Shalon, pointed me to another late 90s anecdote. He pointed out that Enron actually tried to turn internet bandwidth into a tradable commodity as well. Yes. It seemed like a good idea. Then we overbuilt the fiber optic cable and then suddenly the capacity flooded the market, the prices collapsed, and then suddenly it looked like a very bad idea. Is that a good analogy? In fairness to Enron, Enron actually did build a very pioneering energy trading desk that was acquired. I can't remember by whom, maybe it was Citadel or another firm, but an incredibly lucrative desk that actually formed the bedrock of a lot of sort of commodities trading in that space generally.

13:09But to return to compute futures, I honestly, I don't know. I think at least with internet bandwidth, everyone was using this. This was something that everyone touched. You could see a market emerging for it at some point, right? But if you are fundamentally bearish on this space and think everything is going to zero, it's not like the internet where at some point there will be enough human beings to satiate this demand. If you think this is a dud, if you think this is going to zero, which some people do, and you think it's very circular, then yes, the comparison is apt in that it's fraudulent, but it's not an apt comparison in that it's not going to go anywhere.

13:42Mark Zandi:Yes. All right. Very helpful. Very clarifying. Rohan Goswami is business reporter at Semaphore. Appreciate your time. Thank you. Appreciate it as always, Ed. After the break, an update on inflation. And by the way, starting Monday, this show is taking a summer break for the next two weeks. We will be back on August 31st with a fresh episode. We'll see you there.

14:32Mark Zandi:Omaha, anyone can own a piece of the great American companies. But now that's changed. Today, our most innovative companies are staying private rather than going public. The result is that everyday Americans are excluded from investing and getting left further behind while a select few reap all the benefits. Until now. Introducing VCX, the public ticker for private tech, now available wherever you buy stocks. VCX by Fundrise gives everyone the opportunity to invest in the next generation of innovation, including the companies leading the AI revolution, space exploration, defense tech, and more.

15:03Mark Zandi:Visit GetVCX.com for more info. That's GetVCX.com. Carefully consider the investment material before investing, including objectives, risks, charges, and expenses. This and other information can be found in the fund's prospectus at GetVCX.com. This is a paid sponsorship.

15:23Mark Zandi:Support for the show comes from Apple News+. Apple News Plus has everything you're into all in one place. Over 500 publications covering the topics that matter most to you. Thousands of recipes from celebrated food publications around the world, local news from all 50 states, sports coverage from across the globe, audio stories you can take anywhere, and daily puzzles exclusive to Apple News Plus. All of it curated just for you. New subscribers try it free for one month at news.apple.com. Terms apply.

16:31Mark Zandi:we're back with profity markets inflation cooled slightly in july but it remains stubbornly above the fed's two percent target the consumer price index rose 3.4 percent from a year ago and core cpi which excludes food and energy rose 2.5 percent both were down a tenth of the percentage point from the growth that we saw in June. Gasoline prices fell from a month ago, but remain 25 % higher than they were last year. Meanwhile, prices continue to outpace wages, leaving consumers with less buying power than they had a year ago. Still, stock prices rose on the report and government bond yields retreated.

17:12Mark Zandi:Joining us to break down this inflation report, we're speaking with Mark Zandi, Chief Economist at Moody's Analytics. Mark, it's good to see you. I was surprised by this report. I had predicted earlier, I thought that inflation was going to rise from the previous month. I mean, it rose 3.4 % from the year ago, but I thought that we'd see higher growth than we did. That's not what we saw. We saw a little bit lower, kind of in line. What do you make of this report? And what does it say about where we're headed in terms of inflation? Well, Ed, it was very consistent with consensus. So, you know, economists that look at this stuff get surveyed.

17:53Various sources put together a kind of an average of those forecasts. And this was kind of right down the line, you know, right exactly where we anticipated. You know, taking the monthly inflation numbers at face value, I'd say they're pretty benign. You know, I think if we continue to get that kind of—these kinds of reads, that's a good sign. A lot depends on what happens with the Iran war and where oil and gasoline prices are going. And they're already up from where they were in July. So, you know, that augurs poorly for the month of August. And inflation remains, as you point out, stubbornly high and well above the Fed's target.

18:30But I'll take it. You know, Ed, look, you know, we got to start somewhere. Hopefully this month, last month, take it together and we get a few string a few more good months together that that will indicate that inflation is moving in the right direction.

18:42Mark Zandi:On gas prices, they were down very slightly from June. June was not great in terms of gas prices. But it seems that they're rising again when we look at the price of oil right now, which just a couple of days ago breached$90 a barrel again. Because it seems that, I mean, we thought that we had a deal last week. I mean, I feel like a broken record here. We keep on saying there's a deal and there isn't a deal. We had the same thing last week. Oil prices were coming down and then it didn't materialize. Then I guess traders sort of realized, okay, there isn't a deal. The Iran situation remains very uncertain.

19:27Mark Zandi:How important is oil in terms of inflation going forward? And do you predict that it might get worse? Well, it's critical, obviously. I mean, gas prices, going back to food, a lot of that is based on the cost of diesel because you have to transport the food from the seaport or the farm to the store shelf. You know, the price of oil flows through to all kinds of other prices of other goods. So it's really critical. And it has an outsized role in the kind of the collective thinking of Americans because that's the salient price. They see that price every day when they go to work, when they take their kids to school.

20:04So when oil and gasoline prices are moving north, that makes everyone understandably upset. Very difficult to change your driving behavior to adjust. So it's not great. It looked like, as you said, it looked like the war was going to wind down in July. We got some oil flowing through the strait. Oil prices got back down. We got gasoline below$4 a gallon, which just for context, it was below$3 a gallon before the war started up. But it's pushed back up. We're now back at$4.10,$4.15, and if that's where we stay, you know, okay, it's a hardship, but we'll adjust. We'll live with it. But, you know, if the war goes off the rails and the strait doesn't reopen at some point here in the next few weeks, next couple months, and inventories of oil globally continue to wind down, at some point prices are going to jump, and we're going to be looking back at$4.55, and that'll be a real problem.

20:58So I don't think we can, you know, it's very difficult to, we can't forecast it because obviously it depends on, you know, these dynamics that are impossible to gauge. But, you know, hopefully the parties involved might figure out a way to, you know, end this thing, get the straight open, get oil prices down. If they don't and oil prices go up, then as I said, we've got a problem.

21:18Mark Zandi:You mentioned earlier how prices are rising faster than wages. And that seems to me to be like the most important statistic when it comes to the consumer economy. Like, is inflation eating into your buying power or making your buying power and spending power go down? Currently, the answer is yes. And the answer has been yes for quite some time now in 2026. What does this mean for, one, consumer spending, but also just the consumer economy going forward? Do you think that this is a trend that will continue? Yeah, totally. This is a big, big deal. You know, it's even broader than just wages. So if you look at real, so that's after inflation, disposable after tax, so accounting for the tax cuts early in the year, income, so again, that's the shoot and match for – that's the fodder, the financial fodder for spending.

22:10That's actually falling. It's declining on a year-over-year basis through the second quarter and coming into the third quarter. And, you know, obviously with these inflation statistics and prospects for higher gasoline prices, that looks like it's going to continue. Wage growth continues to decelerate because of the tough labor market. So, you know, and that's the average, right? So that means half of Americans are seeing their real income, their real purchasing power actually decline. Now, they can cushion the effect on their spending for a while, and you've seen that in the drawdown in their saving.

22:41People's – the saving rate – overall saving rate has come way in. And it's not at a record low. It got lower during the housing bubble, you know, leading up to the GFC, the global financial crisis. But other than that, this is the lowest saving rate we've ever seen. So we're kind of right on the edge for the consumer, the typical consumer, not the high-end net worth consumer because they've got other financial resources. But for the typical American and certainly for the folks in the bottom half below the average, you know, this can't be sustained for very long and consumer spending will slow.

23:13Now, one thing, just one other quick note, one thing that is important to keep in mind, the folks, and we've talked about this in the past, the folks in the top part of the income distribution, the well-to-do, they drive the train, right? They account for the bulk of spending. So if they kind of hang in there, you know, the economy can kind of struggle through, even if the folks in the bottom two-thirds of the distribution of income are struggling, and they certainly are.