Bricks for Bytes

A tech banker made headlines saying that he would swap his California estate for privately held shares of Anthropic. AI-linked companies now represent 45% of the S&P 500 with the Mag-7 valued at $22 trillion, equivalent to all other developed stock markets combined. Anthropic, OpenAI and SpaceX-xAI are preparing for IPOs that could potentially value them at $3 trillion.

The concentration of stock market value creates significant systemic risks, with the loss-making AI giants, OpenAI and Anthropic, intertwined with existing tech companies. A feature of the current AI wave is token-maxxing, where a start-up uses Claude Code to generate features, but doesn't consider algorithmic approaches that could dramatically reduce token consumption for inference and total usage costs.

The IPO pipeline is both a catalyst and a potential circuit breaker. If SpaceX lists in June at a $2 trillion valuation, it will be the largest IPO in history by a significant margin, and the capital drain through H2 2026, with Anthropic and OpenAI queued behind, will test whether the market's appetite for AI paper is as deep as current valuations imply.

China's 2026-2030 Strategy

While the U.S. goes all-in on AI, China has prioritized different technologies in their five-year plan. The top priority is semiconductors and AI chips. Big Fund III was launched in late 2024 with $47.5 billion. It takes a selective approach to investing to address weaknesses in China's chip manufacturing ecosystem, such as 3D integration equipment. Huawei is bringing up three fabrication plants for its AI portfolio in late 2025 and 2026. SMIC plans to double capacity for its 7nm lines next year. Smaller AI chip firms like Biren and MetaX are advancing towards public listings.

China is dominating in electric vehicles, and in 2024 invested more in its EV supply chain abroad than at home. CATL announced its roadmap in December 2025. In April, it unveiled the world's first sodium-ion battery designed specifically for grid-scale energy storage. UBS expects battery energy storage systems to increase 25% in 2026, and China achieved its wind and solar capacity targets in 2024, six years ahead of schedule. China is investing significantly in grid, storage and smart infrastructure with $88 billion in transmission and distribution investment in 2025. In the future, China has the potential to have the lowest energy costs in the world, helpful for AI and all things manufacturing.

China implemented the most extensive and sophisticated export control regime to date, covering rare earth elements, related technologies and processing equipment copying the U.S. 'foreign direct product rule'. In upcoming negotiations expect China to trade rare earths for easing controls on advanced semiconductor equipment.

China's plan indicates an intense focus on achieving self-sufficiency in strategic chokepoints (semiconductors, batteries, critical minerals) and deploying at scale (not just researching).

Private Credit

Ares Capital hired an outside consultancy to review its software exposure, the first systemic third-party AI risk assessment disclosed by a major private credit fund. They defined 14% of their software holdings at medium risk and 1% at high risk, and that only 3.3% of the entire fund is at medium+ AI risk. They also expanded unrealized losses from $83 million to $412 million. If Ares analysis was inferred across the private credit industry, it would signal that out of a $1.8 trillion leveraged loan private credit market, about $450-$550 billion would be software exposure and only $67-$81 billion would be problematic.

Ares didn't mention who the outside consultant was nor detail the methodology. It's likely that any assessment would lean positive. The increase in unrealized losses suggests the marking pressure is beginning to manifest in fund results.

European Rate Hikes Are Coming. Markets are pricing in three rate hikes. PMI prices are rising across major economies with Germany leading. Energy prices are driving inflation higher, expected to reach 3.5% by Q4. Second round effects are emerging in food prices linked to fertilizer costs and Middle East disruptions. Survey indicators show consumer confidence falling and growth forecasts are coming down, but the EU is expecting to avoid outright recession, and the labour market is strong leaving room for rate hikes.

Three hikes priced in is already an aggressive path for an ECB that was cutting rates eighteen months ago. If energy prices stabilise before summer, the market will be wrong on the number of hikes and duration positions will reprice quickly.

End Note

According to an AP poll, only 16% of adults and 11% of teenagers in the U.S. read a national newspaper or magazine. As a reader of the Financial Times and Economist that probably renders me a dinosaur. 36% of adults and 57% of teens get their news from social media. I will often get social media posts forwarded to me and usually put them in AI for a fact-check. They don't do as well as the national media publications, but often you get a very nuanced viewpoint back from AI that is often better than reading a national publication.

King Charles attended the White House dinner. He could be a comedian. On the ballroom he said, "I'm sorry to say that we British made our own small attempt at real estate redevelopment of the White House in 1814." "Thank you, Mr. President and Mrs. Trump, for your splendid dinner this evening - which, may I say, is a very considerable improvement on the Boston Tea Party." "You recently commented, Mr. President, that if it were not for the United States, European countries would be speaking German. Dare I say that if it wasn't for us, you'd be speaking French." Sometimes a bit of levity goes a long way.

Omar Sayed