The tokenmaxxing correction

Good morning,

After intense backlash to the design of Ferrari’s first all-electric car, the $640K Luce, Lamborghini’s CEO said that canceling plans for his own company’s EV was the right move. Even a picture with the pope couldn’t quell the Italian stallion chassis controversy. In today’s letter:

From 0 to 100… to 100 to uncertain. The tokenmaxxing era may be ending shortly after it started. For the past year or so, many companies have been in a “move fast and spend tokens” phase. Ramp data shows that businesses' average monthly token spend 13x’d from January 2025 to January 2026, while the average AI contract hit $1M this year. Now, some are realizing they may have moved too fast. 

AI’s trillion-dollar question… Are companies putting the capex cart before the ROI horse? In a rare occurrence, analysts expect Amazon, Meta, and Microsoft will announce negative cashflows in at least one quarter this year because of their hundreds of billions in AI spending. Meanwhile, mass layoffs are partly subsidizing that spend. For the second straight month, AI was the leading stated reason for U.S. job cuts across sectors in April, when tech companies announced 33,361 cuts. Meta alone slashed 8K staff in May. Whether mass layoffs are a result of AI advancements or merely a convenient excuse, they likely won’t come close to offsetting AI expenses. So the question is… will it all pay off? 

The risk of being behind outweighs the ROI risk… At least, that appears to be the general consensus. It’s still too early to understand what the results of this massive spend wave and layoffs will be. But companies have been going full-steam ahead because the perceived risk of being left behind in the AI revolution outweighs the risk of being wrong. Another tension is the pressure to be seen as AI-forward in public markets. Still, we’re seeing the beginning of a pullback period in which companies will be much more focused on cost efficiency.

On Friday, all eyes will be on the May jobs report, which will inform the Fed’s June 17 rate meeting decision. Traders are overwhelmingly betting that Warsh’s Fed will keep rates steady this month, but with a non-zero chance of a cut (a 1.6% chance, as of early this morning).

The U.S. added a pleasantly surprising 115K jobs in April and unemployment held steady at 4.3%. And while jobless claims ticked up last week, they continued to cruise in relatively low territory.

All in all, the hard data’s solid. But the soft signals are showing cracks caused by the same hammer: the Iran war and surging oil prices.

Consumer confidence hit a fresh record low in May, and with inflation at a three-year high, many Americans are burning through their savings and falling behind on their $1.25T credit card bill.

It’s not just consumers: CEOs have turned pessimistic about the U.S. economy as supply risks mount. Last week, U.S. GDP growth was revised down to 1.6% as consumer spending and corporate profits slowed. 

U.S. manufacturing activity hit a four-year high in May. While this level of manufacturing PMI would usually be a positive leading indicator, the reality is more nuanced: the surge was largely driven by businesses stockpiling against potential shortages and inflation. 

The hard data and the soft signals are telling two different stories. A weak May jobs report would suggest the headline prints are catching up. 

Sounds like a term from the senior-year physics final, actually an emerging technology that could unblock one of the biggest bottlenecks for the AI industry. 

In just the past three months, Nvidia has committed at least $6.5B to companies developing photonics, a technology which could make data transfer cheaper. The science of generating, detecting, and manipulating light has been used to transmit data in technologies like barcode scanners, fiber optics, and MicroLED displays. 

But light can also be used to move data through AI infrastructure, from chips to servers to data centers, instead of relying only on more costly electricity (in the form of electrical signals running on copper). 

Scaling this cutting-edge application of the tech will take time, which is why Nvidia is investing big and fast. CNBC reports that the semiconductor star has already offered some photonics tech through its networking solutions services.

If big hardware players can scale this photonics use-case, it would unblock a major bottleneck to the AI infrastructure buildout.

The median U.S. home price hit $417K in April, the 34th straight month of a year-over-year increase

Tuesday, June 2: April JOLTS. Microsoft Build event begins. Earnings expected from Palo Alto Networks, Ulta Beauty, and Dollar General

Wednesday, June 3: Earnings expected from CrowdStrike, Broadcom, Medtronic, C3.ai, and Macy’s

Thursday, June 4: Initial jobless claims. Earnings expected from Planet Labs, Docusign, and Lululemon 

Friday, June 5: May jobs report