Hey Income Traders,

In 2004, the Pentagon's research arm ran a race for cars with nobody behind the wheel. It put 15 vehicles on a 142-mile desert course.

None finished. The best one made it 7.5 miles.

On September 1, Waymo opened public rides in Denver, San Diego and Tampa. Same day. That's 14 cities, more than 4,000 cars and over 500,000 paid rides a week, roughly 10 times what it was doing in May 2024.

Twenty years of "next year." Then two years of everything.

Hemingway had the line for it back in 1926. In The Sun Also Rises, one character asks another how he went bankrupt. The answer: "Gradually and then suddenly."

It sure looks like AI just walked into the "suddenly" part. And the links are clearing in a lot of places at the same time.

Stanford economist Chad Jones just published a paper arguing AI's big economic payoff is probably decades away. (He's since taken a job at Anthropic, for what it's worth.)

His reason is a good one.

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A chain is only as strong as its weakest link. A business works the same way. Make 17 of the 20 steps 1,000 times faster and you're still stuck waiting on the other three. It's why you carry 100 million times the computing power of the 1970s in your pocket, and you're not 100 million times more productive.

Fair enough. But read his math closely.

While you fix the weak links one at a time, almost nothing shows up. Once most of them clear, the whole chain lets go. His own model says slowly, then all at once. The only real fight is over the date.

And his favorite example of a weak link that takes forever? The self-driving car. He wrote that San Francisco is the exception and that most of the country still can't hail one. Then Waymo opened three cities in a day.

Now look at what cleared this year…

Start with cost. Token prices have roughly halved since May. Think of the "cheaper chicken" from Father of the Bride. When the chicken costs five percent of the steak, everybody orders, and they order a lot more.

Then capability. Jones's own paper has the numbers. In 2020, AI had a coin-flip shot at a coding task that takes a person nine seconds. By June 2024, it was 11 minutes. By the middle of this year, it was 12 hours, and that number has been doubling every five to seven months. The labs are increasingly using these models to build the next ones. Call it time compression: take the human out of the loop and the release cycle keeps shrinking.

Then usability. Agents were a toy for tinkerers until Meta Platforms (META) launched Muse, which went straight past ChatGPT to become the top free app in the US and Canada. It's the Netscape moment for agents. Monday the 21st's love/leave call was simple: love META, leave Booking Holdings (BKNG). That Wednesday, Expedia Group (EXPE), Airbnb (ABNB) and Booking dropped five percent to seven percent in a single session. Planet Fitness (PLNT) fell as much as 11 percent the day before. The market repriced the whole consumer-inertia trade in about 48 hours. Last weekend's letter said lazy money is about to get audited. This is what the audit looks like.

Finally, the physical link. Waymo, covered. Tesla (TSLA) is running limited rides with nobody inside in Austin, Dallas and Houston. Humanoids are behind. Figure bills BMW by the robot-hour, and Agility's Digit moves totes for Amazon and Toyota. But Musk himself admitted this year that his robots are "not doing useful work" yet. That's the next "gradually." Remember it.

So where does the money go? When most of the chain clears at once, demand doesn't vanish. It slams into whatever link is still weak. In a weak-link world, the weakest link gets paid. That's "buy scarcity, avoid abundance" in one sentence.

Two links aren't clearing anytime soon. Memory is the first. Micron Technology (MU) just reported $54.2 billion in quarterly revenue, up from $11.3 billion a year ago, at an 87 percent gross margin. It guided to $61.5 billion for next quarter. Customers also handed Micron $12.7 billion in deposits this year. Buyers prepaying a chipmaker. That's what a shortage looks like. Capacity grows about 20 percent a year, and demand grows about 200 percent. Call it the ten-to-one gap, and it isn't closing. There's a second memory name riding the same shortage. That one's for members.

Power is the second. The average wait for a grid hookup is now about four years. Big transformers can take up to four years to show up. You can't code your way around a transformer. Three power names fit this setup: two that squeeze more out of the grid that's already there, and one that skips the queue entirely with on-site power. Members get all three.

Don't forget what Hemingway's line was about: Going broke.

"All at once" cuts both ways. The market didn't reprice Booking gradually. It did it in a week. Software got the same treatment this year. IGV went from $104 to $74.

If you're selling premium on incumbents that live on a weak link, know what you're short. You're short the "suddenly." Theta happens slowly. Vega can reset fast.

Arguing with a Stanford economist about GDP is a losing game, so don't. GDP is a slow number. Stocks aren't. Traders price the "suddenly" the day it shows up.

What to watch next: Waymo at one million paid rides a week by year-end, Micron delivering that $61.5 billion guide, and one more Muse-style launch that reprices a whole industry in a week. Get two of the three, and the slow part's over.

It doesn't matter until it does.

Here for a good time AND a long time,

Hans