Dougie Kass
Hedge Fund Manager, President of Seabreeze Partners
Morgan Stanley and Goldman Sachs face a negative multiplier effect as worries about the return on AI capital spending start to be priced into tech. After 18 months of enthusiasm about AI spending returns, CNBC Halftime panelists are now finally concerned about its ROIC. That suggests the concern is being discounted in tech prices, which hurts related areas like brokerages that the show's investment committee has embraced. x.comÂ
Alphabet's AI capex payback is being repriced, making its post-earnings decline more than a one-day mood swing. Guidance and cloud and AI margin commentary are the near-term tests. If growth continues but the multiple compresses, the risk is duration in mega-cap AI, not a collapse in technology growth. x.comÂ
AI financing deals increase the market's perception that alternative asset managers are financing the AI capex buildout, putting their shares at risk in a bust or slowdown. Even if the deals make sense on paper, Blackstone, Apollo, Carlyle, KKR and Blue Owl shares look likely to be pain points in any AI capex bust or slowdown. x.comÂ
Nvidia, Goldman Sachs, Brookfield, Apollo, BlackRock and KKR sit at the big-boy table of winners, led by Jensen Huang, David Solomon, Bruce Flatt, Jon Gray, Larry Fink and Waldemar Szlezak. They are stocks worth owning, probably in larger size. x.comÂ
Debt-funded AI building is making tech stocks vulnerable to a 25-30% pullback as rates and energy prices rise. AI company borrowing reached $466B this year versus $101B a year earlier; weekly default-insurance trading on seven AI names rose from under $2B in July to over $9B in September. Keep cash for lower prices, though 30% earnings growth and a 19x market multiple argue this is not an AI bubble. x.comÂ
US stocks face a potentially bigger selloff as rising inflation compounds concerns about AI spending. PCE inflation reached a four-month high of 3.6%, increasing pressure on the Fed to raise rates; Alphabet shares fell after disappointing earnings, slowing ad growth and more than $51 billion of quarterly capital investment. x.comÂ
The S&P 500's concentrated, correlated AI exposure makes a large allocation too risky as rates rise. Higher rates could force data-center bondholders to sell AI equities; early AI use appears to be stagnating and unclear ROI may cap demand even if usage grows linearly. Failed lab IPOs or a credit-driven recession could also undermine the market. AI moving on-device or on-premise is another significant risk to data-center capacity demand. x.com x.comÂ
AI hyperscalers' heavy bond issuance can crowd out the corporate AI spending they depend on. After hyperscalers flooded the bond market all summer, a company rolling its Covid-era debt 5% higher has less left for an AI budget. And if every valuation and megatech management guide rests on commitments from Anthropic and OpenAI, they rest on unaudited financials never reported to the SEC. x.com x.comÂ
Alphabet's surging AI capex is outpacing its payoff. Its first double earnings miss in four years came with free cash flow of -$9.1 billion versus -$2.7 billion expected, long-term debt up 479% in a year to $125.1 billion, and guidance for significantly higher 2027 capex above $300 billion. x.com x.comÂ
Apple's roughly 35x forward earnings premium looks unsustainable. If fear around the AI trade fades, its gains could stall or reverse. x.com x.comÂ
The hyperscalers' externally funded AI buildout is fragile: a small shock could unravel the whole thing. @JoTrader4 argues Meta, Alphabet, Amazon, Microsoft and Oracle need outside capital because demand, commitments and backlog exceed what cash from older businesses can fund. That is a demand-driven response, but one that leaves little room for error. x.comÂ
