Today’s edition
Hype and Dry
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Good morning, and welcome to your Friday Roundup. One of the world’s best-known technology research firms has done the maths on the AI boom, and its findings are pretty extraordinary. We’ve also got a surprising development at Discovery Bank, a fight between two of South Africa’s wealthiest families, and plenty more. Let’s get into it.
MARKETS
SPEND NOW, PAY LATER
AI’s builders are spending faster than AI is earning, and Gartner says trillions could be written down
The companies building AI are expected to spend nearly $1 trillion on data centres and other AI infrastructure this year, and six times that again between 2027 and 2030. Gartner, the research firm that came up with the hype cycle, has worked out what all of it will earn back. Not enough. On Wednesday it said more than $3.5 trillion of that spending could end up written down by 2030.
A write-down is a company admitting that something it owns is worth less than its books say. Nick van Rensburg of All Weather Capital pointed out that the source is what makes this one land: Gartner is "not like some broker who’s bearish on AI writing reports." The firm's analysts have covered AI and technology cycles for decades.
Gartner’s sums:
- Data centre owners need $8.5 trillion of revenue by 2030 to cover the building, the borrowing and a 12% return.
- Gartner expects AI to bring them no more than $3.6 trillion.
- More than 80% of neoclouds, cloud firms built only for AI, are expected to stop operating independently by 2030.
The giant cloud companies can carry AI on their other businesses for years. The neoclouds have no other business, and they are running on borrowed money.
VITAL SIGNS
Discovery Bank is growing fast, and most of its new business is coming from outside Discovery
Discovery built its bank around rewards rather than branches. It opened in 2019 as a fully digital bank, linking the interest a client earns or pays to how well they handle their money, and in the year to June it made R370 million from its operations, after a loss the year before. Now Moody’s, the credit rating agency, has given its first view of the bank. It expects a profit after all expenses in the year to June 2027, and calls the bank well placed to be agile and cost-effective without a costly branch network.
On paper, a Discovery bank should grow on Discovery’s own clients. Instead, about 70% of its new business comes from outside the group. The home-loan book has more than doubled to over R4 billion, most of it switched over from other banks, in a market where Standard Bank alone finances one in three home loans. Moody’s credits the rewards for pulling savers in, and expects assets to keep growing by about 21% a year for another two to three years.
But Moody’s also identifies a risk. Its rewards are attracting savers, but many still do their main banking elsewhere. That means their money could move if another bank offers a better deal. Even so, Moody’s expects Discovery Bank’s assets to grow around 21% annually for another 2 to 3 years.
BAGEL BITE
Which bird has the largest wingspan?
A. Bald eagle
B. Wandering albatross
C. Andean condor
DOING THE ROUNDS
Two of South Africa’s wealthiest families are fighting over who gets to run a mining company they own together. The Motsepe family’s African Rainbow Minerals and the Sacco family’s Assore each own 50% of Assmang, which mines iron ore and manganese. They’ve shared ownership since 2006, but the Saccos are now taking the Motsepes’ company to court, challenging its right to appoint managers and run the mines. The dispute comes as its earnings from iron ore and manganese have fallen 42%. Full story →
One of South Africa’s biggest private school groups is buying a school that one of its rivals is shutting down. Curro is closing St George’s School in the Eastern Cape at the end of this year because it wasn’t attracting enough pupils to make money. But Advtech has bought the property, with plans to turn it into a school for neurodivergent children, who need more specialised learning support. It’ll become the Eastern Cape’s first campus of The Bridge School, with space for 450 learners. It’s expected to open in January 2028, although Advtech hasn’t disclosed what it paid. Full story →
The rand weakened quite sharply on Wednesday, and it was all because of some news out of America. US inflation came in higher than expected, meaning prices are rising faster than economists predicted. Now investors think America’s central bank might raise interest rates to bring inflation down. Why does that matter for us? Because higher US interest rates mean investors can earn better returns on their money in dollars, making the rand less attractive. Following the announcement, the rand weakened from around R16.45 to R16.66 against the dollar, while South African government bonds held up. Full story →
There’s a big difference between having enough food to eat and being able to eat healthily in South Africa. According to a new report published by Shoprite, feeding a family of four enough calories to get through the month costs around R1,245. But providing that same family with a healthy, balanced diet costs close to four grand. For lower-income households, that could take up as much as 57% of their monthly income. And despite food inflation slowing, rising electricity and transport costs are squeezing family budgets even further. Full story →
WEATHER
BAGEL GAMES
Have you got what it takes to win today’s Wordle? Play here →
THE ANSWER
As for the Bagel Bite, the answer is: B. Wandering albatross
Those enormous wings let it glide for long periods with very little flapping, using energy from the wind to travel efficiently. It can cover thousands of kilometres while searching for food across the open ocean. This flying technique, called dynamic soaring, makes it one of nature’s most remarkable ocean travellers.
That's your Friday, and your week, done. Enjoyed it? Forward it on, a friend can subscribe in a click. Written by the Business Bagel crew.