Introduction

In a week where the VIX went parabolic up:

And Crypto went in the other direction:

We can start to see the setup for 2026 - S&*^'s getting real. The markets have gone from risk on to risk off, and from everyone's a winner, to we are going to start picking and choosing.

The 2026 Setup - a focus on efficiency

In 2024, inference was too slow, too expensive, and too random. Significant progress has been made on all fronts, with 2025 being a magical year in the progress of the current approach to GenAI, even if it is nto the path to AGI. Now, demand is greater than supply. There is no token bubble, but there may have been a market bubble, which are two different things.

Not just because I have been going on about efficiency and complexity for some time and therefore have cognitive bias, I feel in my bones we are going to see much more about efficiency in 2026. There is already signs of increased chatter about the efficiency of new models. OpenAI was accused - rightly or wrongly - of simply brute force. GPT 5, and Google pushed out a new foundation model on highly optimized TPUs.

Short of a black swan, supply constraints are not likely to disappear over night, so we efficiency will be the order of the day. Scaling laws are not dead. However, efficient scaling is not the worse idea in the world. We can see some signs of the efficiency to come:

• Google Gemini 3.0 was priced well, but did not attempt to dramatically undercut existing pricing on a price per million tokens basis.
• Some consumer groups are starting to complain about increasing retail electricity prices.
• Increasing memory prices.
• Increasing TSMC prices.
• And more.

These are all signs the supply side is saying: we are ok holding the line on pricing, because we have more demand than we can serve, so if we dampen demand a little, that is OK.

In my gut, I feel like 2026 is going to be a big year on the energy front in terms of transistions and mix, but more on that later.

The week's summary

Below is an AI-generated summary of the issues that got my attention this week, the full dashboard you can see here: https://www.bohcay.com/library/consider-this

In late 2025, rapid AI advancements—from groundbreaking systems like SciAgent and AgentEvolver that enable self-improving, multi-agent reasoning to efficient TPUs and RAG innovations—have fueled unprecedented productivity and infrastructure demands, yet they coincide with mounting economic strains, including surging credit card delinquencies, record-high CDS spreads for AI companies, and a volatile stock market where Nvidia oscillates wildly while high-quality stocks underperform amid fears of overvaluation and defaults [Note: there has been a pivot to quality this week].

The AI boom has driven massive data center expansions and energy consumption, straining grids and pushing electricity rates upward, while paradoxically accelerating global transitions to solar and wind dominance, with China leading in renewables adoption and fossil fuel declines, though crypto volatility—exemplified by Bitcoin's sharp drawdowns and outflows—reflects speculative bubbles tied to AI hype. Amid layoffs at tech giants like Amazon, rising bankruptcies, and housing depreciation, consumer spending falters, yet innovations like AI-powered travel bookings and stablecoin integrations by Visa and Mastercard signal a shift toward digital economies, underscoring how AI's transformative potential is reshaping industries while exposing vulnerabilities in finance, energy, and labor markets.

• AI advancements, such as SciAgent and AgentEvolver, are enabling multi-agent systems to outperform humans in complex problem-solving, suggesting a shift toward coordinated AI architectures for scientific and adaptive tasks.
• Economic indicators like rising credit card delinquencies, surging layoffs, and record bankruptcies signal potential recession risks, urging investors to prioritize cash reserves and diversify beyond speculative assets.
• Solar and wind energy are dominating new electricity additions globally, with China leading in renewables and coal peaking outside its borders, highlighting opportunities in clean energy investments for long-term stability.
• Crypto markets, including Bitcoin and related stocks, are in a severe downturn with massive liquidations and outflows, advising caution against leveraged positions and a focus on fundamental Bitcoin utility over speculation.
• Stock valuations remain elevated despite market volatility, with AI-heavy companies facing credit risks and high-quality stocks underperforming, recommending a focus on earnings-driven investments over hype.
• Data center expansions for AI are driving memory price hikes and energy strain, creating opportunities in infrastructure stocks like NVIDIA and Google TPUs, but with warnings of overcapacity and profitability challenges.
• Energy transitions are accelerating, with coal utilization declining in major markets like India and China, favoring investments in renewables and battery storage for sustainable growth.

See a dashboard of interesting news at: https://www.bohcay.com/library/consider-this