Texirish,

Thanks for this information. I am an old man now and when contemplating situations like this am thrust back to my early years working for a Fortune 500 manufacturing company with international brands. The rapid rise of inflation in the 1970s and 1980s and the energy shocks during those years forced our manufacturing plants to become nimbler at adapting to a changing world.

It was also during those years I earned an MBA in the evenings. This meant attending lectures and evaluating dozens of case histories. A few years later in 1986 when watching the movie "Back to School" the part where the professor was lecturing about widgets and Thornton Mellon kept responding with real life pushbacks, immediately suggested how customer behavior does not change until confronted with the equivalent of a brick wall. When water shortages, and/or the increasing cost of water, energy shortages, and/or the increasing cost of energy become brick walls in their path, the AI companies will find novel ways to pivot to water recycling, lower cost operating structures and other adaptations.

In my early start-up years, I was a one-man business selling an energy saving product that usually paid for itself in reduced electric costs within 1.5 to 3.5 years. I’d put electric meters on their electric units or my homemade timer on their gas fired units to determine their present energy consumption and then would install my equipment free of charge to determine its energy consumption in their facility. It turns out my MBA professors, like Professor Barbay in the movie, were wrong about human behavior. My professors drilled into us to always jump on investments returning more than the cost of capital. A two year pay-back is an annual 50% return on capital that keeps on producing year after year. Alas, while my prospective customers were average to above average businesswomen and businessmen, they could not get bothered making small decisions that saved/made money for their businesses.

After essentially failing at that business, we (my bride and I) came across an environmental product that fit into a micro-niche enabling a customer that was under the gun to meet local sewer district discharge requirements to bolt on this system and be granted their badly desired Certificate of Occupancy by the local authority having jurisdiction.
Why would a product that pays for itself in two years not be bought and a product that nobody wants to be bought? The answer is the brick wall. Management can put off doing any improvements while the overall going is good. When a brick wall suddenly shows up in their path, their focus moves to getting the brick wall out of the way.

When brick walls start getting in the path, the AI companies will implement the adaptations. Until then, they will keep on keeping on with their present status quo business as usual path.

One more thing, when I am considering an investment, ROE is the number one item on the qualification checklist. The managers and owners encountered many years ago that did not judiciously take advantage of ways to reduce operating costs and costs of goods sold opened my eyes to the relative scarcity of senior management with those skills. Warren Buffett’s requirement of bringing profits back to Omaha for re-deployment into high ROE opportunities, in my opinion, has been the secret sauce for Berkshire Hathaway’s outstanding compounding journey. Let’s face it, most managers are loathe to change the status quo and are always looking to build a larger organization. Berkshire circumvents those tendences by starving its subsidiary companies of excess cash (starving = not having surplus money on hand to fret away in low return or risky projects, etc.). This sweeping away of surplus profits keeps management focused on running their businesses much like blinkers on a mule or horse keeps side distractions from being seen in their field of vision.

Uwharrie