3 in 3: An AI Harness, the Long Tail of Hormuz, Bullish News for Homebuilders

We are entering the summer of the AI harness and what that means for the AI trade. The conflict in Iran is going to have the same long-term effects on oil drilling that Covid did on nearshoring. And Berkshire's deal to acquire a homebuilder may be the spark we need for housing. 

I'm Jim Lydotes and these are our three points in three minutes. So let's flip over the timer and let's go. 

So first, the AI harness. We've hit a massive inflection in how enterprises pay for AI and it could cool down usage as we get into the summer. For the last year plus, companies have been telling employees, try absolutely everything because they've largely been under a flat per seat licenses. But as we enter June, the billing model is shifting towards raw consumption is driven by pooled credit Microsoft Copilot Studio. And Anthropic is moving to much more models. So when every AI workflow is becoming a new cost line item, CFOs are starting to notice. So companies are going to have to start to pull back on the leash, moving from unlimited experimentation to some form of token budgeting. We saw that earlier this week with Walmart. I think we're going to see it more broadly. So longer term, this does force people to be more thoughtful, which is ultimately really healthy. But over the next few months, it probably means a temporary drop off in enterprise demand that the market is completely ignoring right now. 

Second, the great reshoring of energy is upon us. The volatility of the last few months has reminded the world just how exposed we are to a single very narrow choke point in the Middle East. And now energy companies are really feeling the need to diversify where they are sourcing oil, which is going to lead to much more exploration, much more drilling, and much more activity around the world. So ultimately, this is going to lead to a ton of demand for everything that energy services companies do. Covid was six years ago, and today we are still talking about the effects of physical reshoring. The same parallel can be said for the conflict in Iran. So even if we get a peaceful resolution on the conflict in Iran tomorrow, there's a pretty good chance that six years from now, we're still going to be talking about the demand from energy reshoring. So this historically very cyclical industry is about to witness an enormous structural shift in demand, which is long-term massively positive for energy services companies. 

And then finally, the Berkshire catalyst for housing. Berkshire Hathaway's new boss, Greg Abel, just made his first big move since taking the top job, snapping up national home builder, Morrison, in an all cash deal at a 24% premium. Could this be the spark that housing market needed? Well, the problem with housing has never been a lack of demand. It's really been a total starvation of supply. This deal is a marriage of a top US builder with Berkshire's near infinite liquidity. So it sends a message that at least some smart money is not waiting for interest rates to come down to make a bet on housing recovery. They are betting that opening up supply could just be the spark that the housing market needs. 

So that's our three points in three minutes with a little sand left in the bottle. Have a great week and we'll see you back here next time. 

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