Capex Boom, Like Everything Else, Is A Mag7 Story

5 thoughts on “Capex Boom, Like Everything Else, Is A Mag7 Story”

1. I wonder how much of the sp497 decline in cashflow is as a result of share buybacks.

   1. The cash flow comes first. That is the supply. The uses include buybacks, R&D, Capex and the cost of growth. The faster a firm, especially a large one grows, the more capital is required to support that growth. If a firm is doubling in size it will need to double its working capital, plant capacity, labor, support and other expenses. If the growth in some of that support can grow at a slightly lower rate as a result of short-term productivity increases, that will help, but high rates of growth, say 30% or more, lots of cash will be required. Increasing competition, market forces, input prices and other factors can compress operating margins and lower free cash flow. IMO, buybacks are the least defensible uses of free cash.

2. My guess is if you were to screen and exclude for ai thematic and government subsidy adjacent capex, e.g. ira, you are deeply negative.

3. I never bought in to the storyline about buying the Russell 2000 because, collectively, it was supposed to “catch up” in performance with SP500. However, I am looking at a few smaller companies that don’t have a debt problem, have increasing cash flow, and have cap ex budgets for solid and sustainable business opportunities (not solely for AI).

4. This also helps to explain the tepid growth in robotics & automation gear where we are supposed to be seeing a spending boom as “nearsourcing” gains more traction.