xAI is looking more like a datacentre REIT than a frontier lab
martinalderson.com394 points by martinald 10 hours ago
394 points by martinald 10 hours ago
for people, like me, who aren't familiar with the acronym: REIT = real estate investment trust
> And Google is a major shareholder in SpaceX, so they certainly have incentive to juice the valuation of the IPO.
Google own 5-6% of the shares of SpaceX. SpaceX is seeking a valuation of $1.77T which means Google's shares would be worth $88.5B-$106.2B. I'm not a skeptic of AI/LLMs but this makes me deeply suspicious of these circular deals. What happens when the music stops?
Or, hear me out, maybe there's a compute shortage and xAI has compute and manages that well.
There are no dark GPUs. Compute translates directly to money for these frontier labs.
I think everyone is reading way too much into this. Sure there is some circular transactions that are sus, but this ain't it.
Compute is also a rapidly depreciating asset.
I want to make a comparison with a car rental business and say that it would be like valuing Hertz entirely on the basis of the number of cars they own, as opposed to how many they rent out, but cars have a much longer depreciation period, if there are no customers they’re not costing you more money, unlike your computer which you are using for training and sucking up massive amounts of energy, and those cars do maintain decent value even after they’re of little use to the car rental company, unlike the compute here.
> Compute is also a rapidly depreciating asset.
That's the default assumption but in the new GPU+Memory constrained age isn't true.
Time on 4 year old H100 servers costs more now than when they were new (!!)
It is depreciating, but demand has been very high.
There's a reason old 3090's went from $600 in 2022 o to over $1K in 2026.
My local inference rig now costs three times what I bought it for. If I'd gotten the max ram I could at the time I would have made $10k after selling the excess to my current spec.
How someone can look at an asset class thats appreciated an order of magnitude in the last two years and say it will depreciate in value when the tailwinds are even stronger now is beyond me.
Yes, toilet paper and N95s were expensive and hard to buy once, which is why I stockpiled a lifetime supply of them. Suckers!
Fundamentals dictate hardware is a depreciating asset, they're not wrong. They're just ignoring the reality of the current market.
This was true when Moores law wasn't dead. Per watts performance has been flat since Ampere. There is a reason why undervolted 3090s are still used.
GPUs do have a life expectancy. They don’t run forever, especially at high temperatures and full utilization.
everything* is 3x more expensive in the same amount of time though. that's inflation mostly.
* except ram
no need for a car analogy.
the comment you replied to is word-by-word what people hyping canadian telecoms were saying before the dotcom crash!
Compute is about to come an appreciating asset in the near-term, and it some ways it already is.
The frontier labs are shifting from pricing grounded in the price of compute, to pricing grounded in the intelligence provided, or more specifically the economic value of that intelligence downstream.
The margins on that allow them to pay a hefty premium on compute and still come out ahead.
As they buy more compute at high prices, they're also pricing out competition from cheaper models. It's already become materially more difficult to get compute to run open weight models at competitive prices as a result of frontier labs in the last year.
There is zero evidence of this shift in pricing occurring. It’s still a dream which seems unlikely
It feels like this is the line people are using to justify the expense of compute capex
The fact that you can sell or lease out something for more than you bought it for is justification in and of itself.
I run a consumer AI product and the current reality of trying to get compute vs what it was 6-12 months ago is enough to justify it to anyone who has the money.
I think OpenClaw created a mania that was completely unfounded (Apple Silicon is worth dirt compared to literally anything from NVIDIA including consumer GPUs), but the prediction of compute becoming scarce was correct
News to me?
Opus 4.7 has all the signs of a smaller model distilled from a newer pretraining run... except a smaller price.
Flash 3.5 raised in price pretty meaningfully over Flash 3
GPT 5.4 got a small price bump over gpt-5.3-Codex/gpt-5.2, then gpt-5.5 doubled pricing over gpt-5.4
Even open weights isn't immune: Kimi K2.6 was originally priced higher despite openly being 2.5 + more post-training, same with GLM 5.1 vs 5
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All while rental prices are spiking month over month, and NVIDIA Inception discounted prices for buying are higher than undiscounted prices for buying 6 months ago...
> I think everyone is reading way too much into this. Sure there is some circular transactions that are sus, but this ain't it.
Let us pin this comment and see how it ages
>There are no dark GPUs
This might not be true. Someone was comparing Nvidia's production rate with known data center capacity, and they do not match. Their conclusion was that people (possibly even Nvidia) were hoarding GPUs- in the very short term this might be a good strategy, but GPUs go EOL fast. There are other stories about paused datacenter builds that match with this.
TSMC is definitely fully allocated, based on current 40 wk lead times for FPGAs..
All that means is that there's a bottleneck at the data center layer. When he says "dark GPUs" he's saying that there are no dark DEPLOYED GPUs.
This is a reference to the 1990's dot com bubble where internet infrastructure companies overbuilt network capacity, leading to the term "dark fiber". That was an indicator of a bubble because it showed that capacity was larger than demand. OP is saying that this is specifically NOT happening in the case of GPUs yet, indicating that demand still outstrips supply of compute.
>GPUs go EOL fast
We are seeing the opposite of what was expected, GPUs are actually getting more valuable because demand is so great, something that basically never happens. Even older chips have become more valuable.
>paused datacenter builds
It doesn't seem that datacenters have been paused because of lack of demand for AI, it seems mostly that there is a lot of pushback by cities to build these things and also there is a shortage of power to run them.
IMO none of these things point to a AI being a bubble (over-hyped, demand does not match the stated value). It mostly points to the opposite, there is massive demand for AI and every layer of the supply chain is struggling to keep up with that demand.
Adding to this, a lot of fiber installed in the 1990s is still dark. Multi-wavelength XYZ and other improvements mean the same fiber from 35 years ago can carry 100 or 1000x what it was originally designed for. Also, like Solar, all the cost is in labor. When they designed the Seattle/King County fiber network, they knew they would never have access/permits to go back and add more, so instead of running a single 12 fiber bundle the size of your pinkie, they ran 3 x 1024 bundles the size of your arm through the hollow bridges that span I-5 freeway and snakes through Seattle underground. Almost all of that sits dark today despite being in a very busy area, simply because fiber technology keeps getting better.
Yea, fiber is great. They can do hundreds of terabits/s per fiber today, and petabits/s is not far away. Bandwidth is fundamentally cheap enough that my ISP offers 50Gbps residential service!
Don't you think that under excess demand, production will ramp, competition will become available etc? These posts read like we're all out of fresh silicon or something.
No. Because the investment to get into the game is too big and takes too long. The ones who can create the silicon are already oversubscribed.
Indeed, that hardware was bought on old RAM, SSD, etc pricing. These are now 5x the price.
To reap massive profits before depreciation is just plain smart. LLM space, model generation is just plain crowded now too. And everyone thinks a crash is coming.
They could also build out their own end-user infra, but letting someone else which already sells direct to the public do so, is sensible.
I know of the desire to show profit for the IPO, but my point is, this is a good move on its own.
xAI lets companies like Google move fast and hurt people at arms length.
Google itself has a good reputation as a facilities operator. SpaceXAI is operating gas turbines emitting exhaust at ground level.
Google has also tried to hide things like water consumption data, see:
- https://cloud.sustainability.watch/explore-issues/example-go...
- https://www.sfgate.com/national-parks/article/mount-hood-wat...
They also seemingly dropped their net-zero climate goal:
https://www.tomshardware.com/tech-industry/google-quietly-re...
Compute is presently in shortage but generally it's a commodity. It also depreciates.
> generally it's a commodity
The NVIDIA GPUs, HBM, land-use permits and power-supply agreements xAI nailed down are absolutely not commodities.
I think xAI is a mess. But let’s call a spade a spade, they speculated on AI compute and they are currently right.
My read is that xAI built a lot of compute for their own use, but they didn't get any adoption so they are reselling the unused capacity to recoup at least some of the costs. So calling it a good bet is kind of misleading
> and power-supply agreements
Don't you mean gas turbine purchases and questionably legal operation? But yeah I feel exactly the same way. The AI part of xAI looks like a mess but it seems that they still managed to score a massive win.
> Don't you mean gas turbine purchases and questionably legal operation?
The point is it’s running. They built fast before the backlash got organized. Now everyone has to deal with delays and thoughtful permitting processes.
Sure, they brought in artillery and a small freelance militia to shoot at the unionized workers, but the point is, the survivors are back working the mines...
You're taking an odd tone here.
The "backlash" is the poorest residents one of the poorest large cities in America trying to fight for their right to clean air.
Your point might end at "it's running", but holistic thinkers have no problem considering the how they arrived there, given what it's doing to these folks for marginal benefit.
It's not like xAI would go under if they had chosen a less populated location and waited to get permanent power.
The point is they're in a business no one would claim is particularly profitable but claiming a valuation like they're in a totally different business - one where they're not even top 3.
Its not that there isn't value in that business, but it's not the AI business either. Its the one where Oracle is laying off staff to try and avoid a revenue crash on future commitments.
Both Google and Anthropic would be trying to can this sort of rental arrangement as fast as possible since it's a mind bogglingly expensive way to get something you already do in house.
It isn't normally particularly profitable but given their lucky timing they appear to temporarily be doing quite well. When their tenants eventually vacate either they make a move to reenter the race for the cutting edge and get lucky or else they revert to a "boring" cloud rental business with near cutting edge hardware. That seems like an extremely favorable mode of failure to me.
This feels highly revisionist: they bet on becoming a frontier lab and were aiming for AGI.
If they were speculating on compute, it seems highly unlikely they'd have spent the operating costs for the last 3 years of model development and deployment instead of just getting even more compute.
There is a compute shortage.
In fact, for all these companies to do what they're going to do, they need a massive, massive massive amount of data centers, a highly improbable number of data centers that need to be built in an highly improbably short amount of time.
And the capitals about to dry off in about a year. So it's a race between these improbable timelines on data center construction, with capital evaporating.
> I think everyone is reading way too much into this. Sure there is some circular transactions that are sus, but this ain't it.
Alphabet/Google profits:
Q1 2025: $34.54 billion
Q2 2025: $28.20 billion
Q3 2025: $34.98 billion
Q4 2025: $34.46 billion
<<Q1 2026: $62.58 billion>>
Amazon profits:
Q1 2025: $17.1 billion
Q2 2025: $18.16 billion
Q3 2025: $21.2 billion
Q4 2025: $21.19 billion
<<Q1 2026: $30.3 billion>>
Both Alphabet/Google and Amazon have invested recently into Anthropic and are doing all sorts of financial chicanery.
https://www.youtube.com/watch?v=-bjNrGFiAI4
Nah, man, it's all fine, they're just going to take down the entire global financial system doing this crap, and by global, I mean <<everyone's>> pensions are going to take a hit, even "fully funded" pension systems.
> Both Alphabet/Google and Amazon have invested recently into Anthropic and are doing all sorts of financial chicanery
bko didn’t say there isn’t circular financing going on. They’re just saying this isn’t an example of it. They’re right.
It’s a potential conflict of interest. And if the agreement is fake—if Google cancels without paying the cash—it could be market manipulation. But the influencer space likes to latch onto jargon, and the one it’s overapplying right now is circular financing.
Did I say it was circular financing? I said "financial chicanery". I even included a link to a video explaining said financial chicanery.
What are you even going on about?
The comment you’re responding to and the comment above it are about circular financing. It’s reasonably to assume that’s the same chicanery you’re talking about; expecting everyone to watch a random video to understand your comment is unreasonable.
I listed a bunch of data points that make no sense (profits spiking 50% in a non-Christmas quarter for companies) and weren't directly tied[1] to the circular financing.
[1] They're indirectly tied to it.
> that make no sense (profits spiking 50%
They were unrealized gains on non-marketable equities. It’s clearly disclosed and done according to GAAP. It’s put under other income precisely so analysts can strip it out when modelling long-term trends.
Like, yes, if SpaceX goes to zero Google would have to realize losses and probably lose a quarter or two of GAAP profits. (But not cash flows. Cash-flow wise, it may wind up being positive due to tax effects.) It’s a risk factor, of course, but far from making no sense.
None of which is particularly relevant to the deal at hand other than in raising a potential conflict of interest among related parties.
> but far from making no sense.
When I said "it makes no sense", I didn't mean "the accounting math doesn't work out". I meant "raising a potential conflict of interest among related parties".
This whole AI financing this is the motherlode of "potential conflict of interest among related parties".
And people who are obtuse enough to ignore this because it's not illegal right now will discover 5-10 years from now that laws are written in blood (or massive bankruptcies).
The music would have a risk of "stopping" if these deals were backed by a speculative entity. However AI actually has real value/revenue, and is not a speculative product (i.e. people aren't buying tokens to resell them, a token is "consumed" at moment of inference)
That's like saying "nobody is speculating in Enron stock" simply because there was electrical power that was sold for real revenue and consumed.
Enron collapsed due to legitimate fraud. To imply Enron is an apt comparison requires assertion that AI companies are actually cooking the books. Is that what you are saying?
The ARR were fine but showing skewed quarterly profitability numbers by slowing down research due to hitting compute capacity suggests otherwise.
I am certain Anthropic spent less on building the next model this quarter if they make it to profitability due to the shear fact that they don't have enough compute.
Which solves the profitability problem with relative ease momentarily.
Also just to confirm, AI subscriptions are definitely being sold at a loss how big I don't know but these models are much harder to run.
API is definitely being sold at a decent profit.
So if you rate limit users and do usage billing + lower research costs which is a money pit temporarily.
(Proof is the fact that we don't have a new pre training run since 4.5 yet, they used to do one every 2 releases)
4.9 will probably be the same.
Next model Mythos doesn't seem to have a successor yet and was trained previous quarter most likely, they don't seem to have pre trained another one just improved Mythos if at all.
As much as I am into AI these attempts to show that there can be a profitable quarter seem like cooking the books, even if we assume no shady dealings otherwise.
Unless one of the Labs can say for certain training is going to stop they can't be profitable and I don't think training can stop because marginal gains is all they have.
8-12 months behind narrative for Chinese labs literally is going to kill the company that stops training first.
If we assume only a 3-6 month gap once China has more compute, then well then even if they keep training the lack of ability to arbitarily scale data centers in US, will kill them first.
DeepSeek V5 might actually just end the AI race for good.
Also given Mythos is atleast a 10x model compared to Opus, then it's pricing is likely going to be 10x as well so well token prices are likely never coming down, especially if these companies want to IPO.
Why would V5 kill the AI race? Do you believe that there are diminishing returns on model intelligence when applied to real-world tasks?
I think there are accelerating returns: i.e. a models are still not good enough to be “drop in” remote workers, but once that threshold is passed, the value of each token of inference has a far higher multiplier.
This justifies the buildup. However not everyone agrees that model intelligence will continue scaling thus they assert that eventually the economics will hit a wall.
>Also given Mythos is atleast a 10x model compared to Opus, then it's pricing is likely going to be 10x as well so well token prices are likely never coming down, especially if these companies want to IPO.
I don't know why people say this when cost per unit of intelligence has been going down continuously over the past few years. When Opus 3 was first released, its API cost was $15.00 per million input tokens and $75.00 per million output tokens. Opus 4.8. which is significantly better, is $5.00 per 1 million input tokens and $25.00 per 1 million output tokens
>The ARR were fine but showing skewed quarterly profitability numbers by slowing down research due to hitting compute capacity suggests otherwise.
I have to say, I find this really puzzling. We know for a fact that Anthropic are making bank on metered inference. That's their biggest source of profitability, we are seeing software companies start to majorly adopt coding agents over just the last few months.
Right as the biggest driver of enterprise adoption is accelerating, and it's tied to their biggest profit vector, you find it suspect that their profits are increasing significantly?
Also, can you clarify what you mean by "slowing down research" exactly? Do you mean they're not doing big pretraining runs? Less compute available for researchers? Scaled back RL?
>Also just to confirm, AI subscriptions are definitely being sold at a loss how big I don't know but these models are much harder to run.
Maximum usage of AI subscriptions is a loss, but do we actually know how that nets out? Has anyone done any research to try to figure that out?
> can you clarify what you mean by "slowing down research"
He is claiming that they have been investing less in R&D and that this is juicing their numbers in an unsustainable way given how close the competition is to catching up. His evidence is the content and cadence of model releases recently. (I'm not taking a position one way or the other, just clarifying for you.)
> Maximum usage of AI subscriptions is a loss, but do we actually know how that nets out?
They almost certainly don't have to care. All the enterprise accounts use the API pricing AFAIK and that appears to be profitable and is expected to be the vast majority of the usage in the medium to long term (if it isn't already).
Please address the primary point first: Selling some product does not disprove speculation.
In the case of Enron, people were obviously speculating in its stock, and that remains true regardless of why it collapsed later, or even whether it collapsed at all.
I say "first" because if you still can't agree that speculation in AI stocks even exists, then it's pointless to discuss what people might be doing to exploit or encourage it.
Speculation exists for every security. However wrt revenue numbers, Anthropic/OpenAI’s revenues are largely made of companies/individuals purchasing tokens. Enron’s was accounting which stated future potential revenue as current earnings. They are not the same. Enron pulled off a lot of shady schemes to hide their accounting practices. All of the “circular deals” AI labs are doing are publicly known and clear to see, so its not like anyone who knows what a circular deal simply knows something everyone doesn’t.
Also to be more specific about our point of disagreement, I think we are referring to speculation in different domains. When I brought it up, I am referring to the fact that any companies whose revenue is driven by a speculative bubble (like what precipitated the 2008 crisis) would be at risk of massive losses "if the music stops". Anthropic/OpenAI aren't flipping assets. It is true that VC funding is based on speculation, but their core business model is producing massive revenue growth on selling tokens.
It's an interesting point that the token revenue will presumably survive a crash in stock prices. But (IIUC) much of the new infrastructure is funded using stock is it not? So it seems like token revenue theoretically surviving doesn't address the risk to the rest of the economy here. And if the economy takes a large enough hit then presumably so will token spend because someone has to pay for that after all.
Sure their actual immediate revenue is driven by concrete numbers but when the rest of the economy is reorganizing itself based on their projected future revenue is the former observation still relevant?
That is true, if all the new data centers don’t produce revenue then there will be a crash. However you’d have to bet that the models won’t stop getting better, or if they still keep getting better, that somehow better models does not translate to increased productivity. Would it be wise to look at how AI has progressed over the last 5 years and make that bet?
It's possible to question the accuracy of the projections without disputing that the numbers are expected to go up. It's not that the new data centers wouldn't produce any revenue but rather that those numbers are where unfounded speculation could be happening. If and when those numbers fail to materialize (or when investors revise their projections) would presumably be the point at which the music stops.
Recall that the exchange earlier called into question the similarity or difference to enron. Sure, the current revenue numbers don't appear to be cooked but if the future revenue numbers are unrealistic and everyone is using those future numbers to make their decisions then isn't the end result roughly analogous? Blatant fraud not withstanding of course.
Note that I'm not claiming the above to be the case. Merely illustrating the commonality and acknowledging the possibility.
Remember when nvidia asked us to stop calling them enron because unlike enron they actually admit to doing all the things enron did so it's not illegal?
Circular dealing or round tripping is a form of cooking books and sometimes results in accounting fraud. Especially when circular revenue is booked without cash flow growth. Do you see cash flow growth on any side of these transactions.
You seem to imply that with this deal their shares are worth 88B but without it they're worthless.
It's very hard to know how much the deal actually increases SpaceX market cap, but unless Google exits their SpaceX position soon it doesn't even make much sense as a circular deal.
They're worthless to the S&P 500 which requires four quarters of profitability. SpaceX is running at a $5B loss. Google 'buys' $10B of compute every year...
Executive compensation is often based around share prices, so this can be worth quite a lot to the people making these decisions without any long term upside for the company.
If you want to understand how companies behave you really need to look at things from the perspective of people making the decisions.
I don't see Alphabet share price changing much just because of SpaceX being valued 2T instead of lets say 1T (being extremely generous). In fact this deal will hurt their profits, which is more likely to hurt Alphabet stock price than the valuation of an asset that they hold.
> I don't see Alphabet share price changing much just because of SpaceX being valued 2T instead of lets say 1T
Half of Alphabet's revenue increase last quarter came from marking up unrealized gains in their Anthropic investments.
I'm not saying Alphabet is doing this to juice the share price, but I want to point out that they don't have to sell shares to post banner earnings results and see a 10% jump in share price overnight.
Someone gets bailed out and the cycle starts again. Isnt this how it works?
We are basically dealing with the fallout of the 2008 GFC bailout to this day.
The fiat economic system is irreparably broken, and we are circling the drain. Another bailout is _probably_ inevitable. But the cycle sure as hell isnt resetting and we are speeding towards something... what it is is unclear though, and when is also unclear.
The part people cant wrap around is the scale of it and the time it takes to go through the super cycle. Theoretically, it all started with the Dot com bubble, which indirectly cause the housing bubble, which caused the GFC. Which caused whatever happened in 2019, which caused QE in 2022 under the guise of COVID, which is causing whatever the hell is happening now.
Capitalism has become uncorked, and money is irreversibly flowing to the top at an increasing rate. The logical next stage is that like 75% of the world's population is literally not even part of any economy. And that doesnt really make any sense
You've made lots of (wild) claims, but provided zero support for them. Also didn't bottom income quartile see the largest growth in last few years?
Sigh, no. Money is not flowing; company valuation might be, but that's temporary and only works if the company keeps delivering insane amounts of value.
So the founders sell plenty of stock while the price is high and then when their valuation crashes sure they "lost" half their net worth but the other half is still there.
I'm not saying that's what's happening, just making it clear that company valuation not being permanent is not a valid argument against money flowing to the top.
yeah I intuitively have felt something like this has been happening, too. And finding the evidence is such an immense task, and feels way out of my current energy level.
When COVID was ongoing there was a term floating around I liked, "Psychosis" was it. The spell is like that of, denial? Terror & shock?
Trauma might be better?
Looking at trauma responses and how to detect it in humans is an interesting perspective to look at all this with. Personally, if I look at it from "people are afraid, traumatized, defending themselves" and use that to extrapolate how most people (the masses, the non-rich) would act and also the rich - that points me to why theres such a sudden hastening of action and pace of wealth up towards the top in the name of AI & war.
or, hear me out, we can try the Irish way? Just let them fail ffs
Unfortunately, the entire US economy is being propped up on AI stocks. If they are allowed to crash, the consequences would be extreme all across the board. See the recent worming into index and pension funds. If they collapse now, a lot of regular people are going to get wiped out.
Should the government bail them out or somehow stop the collapse? Arguable. Will they anyway? Almost certainly. These companies have engineered themselves into a position where being allowed to fail would wreak catastrophic damage to the national (and global) economy precisely so that the taxpayer will be left holding the bag if and when it all comes crashing down.
Capitalism is rotten to the core and there's no fix for it.
> These companies have engineered themselves into a position where being allowed to fail would wreak catastrophic damage
Where is this assumption of malicious intent coming from? This has all been fueled by a global AI hype that might or might not prove to be justified in the end. The overall economic situation looks (IMO) quite similar to that of the railroads in the US and those did ultimately fail and were nationalized(ish).
The current situation is hardly limited to the US and capitalism. China also appears to be actively reorganizing their economy around AI.
Hyperinflation to make the needed bailout money
That's done quietly behind the scenes so leaders can blame something else for inflation.
See "M2SL" or "TOTBKCR" on tradingview if you want to see inflation live.
>See "M2SL" or "TOTBKCR" on tradingview if you want to see inflation live.
https://fred.stlouisfed.org/series/M2SL
https://fred.stlouisfed.org/series/TOTBKCR
And you would have been massively wrong. People have been complaining about quantitative easing since post GFC, and if you took the figures at face value, those would imply inflation was nearly 100% between the end of GFC and before the pandemic. Whatever you thought about the post-pandemic inflation, the period between GFC and pre-pandemic definitely did not see the level of inflation implied by those figures.
I mean, it sortof did in assets, just not in the changes tracked by CPI.
That's because they take and modify what is tracked in the CPI at will
https://www.bls.gov/cpi/tables/relative-importance/home.htm
What do you find controversial, and would cause a material difference in the headline inflation rate?
Banks not needing people's money is quite a bad thing. EDIT: M1 looks like a damn sigmoid.
I don’t understand how to read those charts.
Any time you see a price denominated in $, divide by that chart.
The idea that inflation and the money supply are linked is one of the most dumb one in folk economics.
Just look at these charts: they were declining when inflation was raging on in 2022-23 …
> "The idea that inflation and the money supply are linked is one of the most dumb one in folk economics"
"folk economics" implies it is by untrained people.
Milton Friedman's famous quote of "inflation is always and everywhere a monetary phenomenon" shows that he deeply believed the relationship between inflation and money supply, and one certainly cannot call Friedman a "folk economist" considering he won the Nobel prize in economics and was a professor at the University of Chicago.
Note: I am not saying he is right or supporting his belief. I am merely stating that such a belief is not a "folk economics" belief. This belief is still very prevalent in the freshwater schools of economics. [1]
As a personal anecdote, at Ronald Coase's 100th birthday party, I personally got Gary Becker and Richard Posner debating a very related topic (whether and by what degree the velocity of money of fluctuates and whether helicopter drops of cash would have been better during the early days of the money supply collapse in 2008/2009 than just giving money to the banks). In a room full of Nobel Prize winning economists in 2010, there was a very rigorous debate on the topic.
[1] https://en.wikipedia.org/wiki/Saltwater_and_freshwater_econo...
> "folk economics" implies it is by untrained people.
The problem is mostly its appropriation by untrained people though.
> Milton Friedman's famous quote of "inflation is always and everywhere a monetary phenomenon" shows that he deeply believed the relationship between inflation and money supply
Creationists theoreticians believe in creationism too. The problem arise when their theory reach the mainstream… (Influential people inside the Swedish Central bank making a fake Nobel prize to promote these ideas didn't help of course…)
Lagged processes are one of the most fundamental concepts in economics. If merely recognizing the possibility that one could be at play here is throwing you for a loop, you need the simplified monetary model more than most.
Where's the hell is the lag on these graphs though!? The money supply grows both before, and after the inflationary spike. (And the fact that it stops increasing when inflation is high is not surprising at all, by the way, high inflation make the central bank raise interest rates, which reduce credit, which is where money comes from).