1. Is the market expensive or not? It depends…

On a forward earnings basis, the P/E multiple for the S&P is 20.5 which is off the recent highs and well below the dot com bubble top. Despite the rally to new highs, the P/E multiple is not moving higher due to earnings surge.
However, the hyperscalers are using cash on hand, cash generation, and debt for the massive capex boom. As a result, the net cash position is moving sharply lower.
As a result, the story is much different when we look at price to free cash flow. The chart below is price to forward free cash flow estimates going back to 2010.
As you can see the multiple is 29 times forward and is over 50% higher than 2019 levels as example.

2. Hyperscaler’s free cash flow at its lowest level since 2014.

3. Big tech companies are tripping over themselves to get as many chips as possible to secure AI supremacy.

That’s great news for chip juggernaut TSMC.
While the company doesn’t make memory chips, it is the go-to manufacturer for just about everything else—including Nvidia’s market-leading AI chips and Apple’s smartphone chips. It has already seen sales and profits soar over the past few years.

4. The cloud order book is leaning on two clients.

About 50% of the trillions in backlog for the hyper scalers is coming from Anthropic and OpenAI that have combined revenue of about 70 billion.

5. Capex punishment.

Why are they racing to outspend one another?
 “They’re afraid not to do it,” says Fisher. AI is so transformational that being number one is vastly better than being number two or three. And tech leaders are confident that they, not their competitors, will prevail.
 Amazon founder Jeff Bezos caused a stir by calling AI an “industrial bubble.” The winners will win big and society will benefit, he said, but the overall return on all the money being spent today probably won’t be great.
 We do have enough market-history to know that the companies bulking up their assets probably will underperform the market as a group.

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