Why do you think markets seems to disapprove of hyperscaler (GOOGL, MSFT, AMZN, META) capex spend despite management teams saying on conference calls that they are getting high ROICs, accelerating growth profiles in their CSP arms (and Meta's FOA), and high (but declining ex GCP) margins on accelerating capital bases?
These businesses strike me as examples of Buffett's 'lots of capital at high returns' ideal, yet other investors seem scared off due to their increased use of OCF for reinvestment.
I vividly remember a time when investors were discounting big tech because they didn't have any use for the OCF other than buybacks (and were mad at some of them for their net cash balances - they wanted a dividend recap). Yet, now that they've found a new place to funnel OCF at internal ROICs (>20%) (rather than externally via buybacks / dividends at market returns), investors are angry/scared.
The whole reaction to reinvestment has been strange to me. I try to imagine that market reacting poorly to Costco reinvesting all of their OCF to open new stores, and can't. Yet, despite hyperscaler ROICs and margins being pretty well understood (approximately 20% and >30% respectively) increasing reinvestment in some of the best business models available (CSP/hyperscalers) is met with skepticism and fear.
I completely agree with your read on just how significant the signal is. It is the one signal I have been thinking most deeply about and has been most erroneously conflated with AI-capex fragility. People also don't seem to appreciate the fact that ~$30bn of the $40bn ATM is to meet 2026 employee equity-comp tax.
Your read '...they’re telling you that this capital raise (and the ROIC they’re projecting from it) is in large part informed by their customers’ backlog' also supports my argument that externally-forecasted 5y-capex-ROI (chart from FT that went viral) is futile. >> https://marketstack.substack.com/p/the-impossible-maths-of-the-impossible
The return side of a 5-year ROI is built almost entirely from variables that are (a) private and demand-driven (b) hostage to the single most-contested, least-visible assumption in the whole stack, GPU/TPU useful life and the depreciation schedule, where even insiders disagree and the real inputs are unobservable which is exactly why the financing decision is the only honest signal and this is the read that hasn't gone viral enough in my opinion because it's not a reductive doom chart.
I am looking forward to your bear case because I agree it has implications for fragility more broadly (not Alphabet). But lets not forget that Berkshire more than tripled its Alphabet stake in its Q1 2026 13F, it was both the largest add and the largest absolute single-name dollar shift in the filing.
Why do you think markets seems to disapprove of hyperscaler (GOOGL, MSFT, AMZN, META) capex spend despite management teams saying on conference calls that they are getting high ROICs, accelerating growth profiles in their CSP arms (and Meta's FOA), and high (but declining ex GCP) margins on accelerating capital bases?
These businesses strike me as examples of Buffett's 'lots of capital at high returns' ideal, yet other investors seem scared off due to their increased use of OCF for reinvestment.
I vividly remember a time when investors were discounting big tech because they didn't have any use for the OCF other than buybacks (and were mad at some of them for their net cash balances - they wanted a dividend recap). Yet, now that they've found a new place to funnel OCF at internal ROICs (>20%) (rather than externally via buybacks / dividends at market returns), investors are angry/scared.
The whole reaction to reinvestment has been strange to me. I try to imagine that market reacting poorly to Costco reinvesting all of their OCF to open new stores, and can't. Yet, despite hyperscaler ROICs and margins being pretty well understood (approximately 20% and >30% respectively) increasing reinvestment in some of the best business models available (CSP/hyperscalers) is met with skepticism and fear.
because of fear and overly-reductive frames going viral / conflating with dot.com
I completely agree with your read on just how significant the signal is. It is the one signal I have been thinking most deeply about and has been most erroneously conflated with AI-capex fragility. People also don't seem to appreciate the fact that ~$30bn of the $40bn ATM is to meet 2026 employee equity-comp tax.
Your read '...they’re telling you that this capital raise (and the ROIC they’re projecting from it) is in large part informed by their customers’ backlog' also supports my argument that externally-forecasted 5y-capex-ROI (chart from FT that went viral) is futile. >> https://marketstack.substack.com/p/the-impossible-maths-of-the-impossible
The return side of a 5-year ROI is built almost entirely from variables that are (a) private and demand-driven (b) hostage to the single most-contested, least-visible assumption in the whole stack, GPU/TPU useful life and the depreciation schedule, where even insiders disagree and the real inputs are unobservable which is exactly why the financing decision is the only honest signal and this is the read that hasn't gone viral enough in my opinion because it's not a reductive doom chart.
I am looking forward to your bear case because I agree it has implications for fragility more broadly (not Alphabet). But lets not forget that Berkshire more than tripled its Alphabet stake in its Q1 2026 13F, it was both the largest add and the largest absolute single-name dollar shift in the filing.