The recent listing of AI data centre company CoreWeave on the New York Stock Exchange has provided valuable insights into the economics of the AI industry. CoreWeave’s journey from Bitcoin mining to AI computing has been marked by rapid growth, with sales increasing from $16mn to $1.9bn in just two years. The company now boasts $12bn worth of computing power on its balance sheet.

However, despite its impressive growth, CoreWeave faces challenges. The company is not profitable, heavily indebted, and heavily reliant on a single customer – Microsoft, which accounts for 62% of its revenue. This concentration risk is a common issue in the AI industry, with Nvidia also dependent on a small group of customers for a significant portion of its revenue.

The risk of concentration is not limited to individual companies but extends to the stock market as well. The Magnificent Seven technology stocks make up around 40% of the S&P 500, leading to market volatility when these stocks underperform. This has been evident in the recent decline in Nvidia’s share price and the broader drop in the S&P 500.

Tesla’s experience highlights the dangers of having a small number of customers. The company’s sales have been impacted by political factors, underscoring the need for diversification in customer base. Companies like Amazon, Google, Meta, Microsoft, and Apple have diverse customer bases, reducing the risk of concentration.

In light of CoreWeave’s challenges and the broader market trends, diversification is key for investors. Investing in businesses with diverse customer bases and geographic spread can help mitigate concentration risk. Additionally, individuals should focus on developing transferable skills to enhance employability across multiple industries.

The future of the AI industry and the stock market remains uncertain, emphasizing the importance of staying adaptable and humble in investment decisions. As Warren Buffett noted, businesses and individuals with desired talents will find a way to cope with changing circumstances. By prioritizing diversification and resilience, investors can navigate the evolving landscape of the AI industry and beyond.