Capex And Clickbait

You’ve all seen the chart right?

The one about fund managers and capex?

If not, good news: You have a life outside the often deafening cacophony of online macro-market commentary.

If you have seen the chart already… well, I don’t know what to tell you in light of what I just said. You’re probably spending too much time reading financial news. No, wait. Financial “news,” with scare quotes.

There it is. The chart, I mean. It shows you the net share of respondents to BofA’s monthly fund manager poll who said management teams are over-investing — “too much capex,” as the bank’s Michael Hartnett put it.

That’s the kind of chart you adore if you’re, say, a mainstream financial media reporter with several hundred thousand Twitter followers. Here’s how it works. This month’s edition of BofA’s poll hits your inbox on your morning commute into Manhattan. You scroll through it, see that chart and say, aloud, “Oooo!” (Someone beside you on the train glances over and thinks, but doesn’t say, “What’s so goddamn interesting over there?”) You take a screenshot with your phone and tweet it out. Tens of thousands of people you don’t know (and who don’t know you), click the heart icon on your tweet. They feel informed, you feel loved and everyone involved takes another unwitting step down the road to social media-induced isolation and depression.

Anyway, this is the first time in 20 years that a majority of respondents to BofA’s poll said companies are over-investing. As the bank’s Michael Hartnett noted, stating the obvious, the “jump is driven by concerns over the magnitude and financing of the AI capex boom.”

Those concerns are the talk of the proverbial town. In his latest, also out Tuesday, Nomura’s Charlie McElligott said the “‘stocks only go up’ crowd has hit a (rare) wall over the past few weeks” as the market’s no longer “blindly” rewarding open-ended AI capex promises.

The figure on the left, above, shows you the explosion in total borrowing (i.e., issuance and loans) to fund data centers. The figure on the right shows tech spreads are now wider than overall IG spreads for the first time in at least a dozen years.

“After this latest quarterly earnings cycle, it seems obvious there will be greater scrutiny” on mega-cap tech and hyper-scaler spending, McElligott remarked, adding that investors will increasingly demand evidence that all these outlays are accruing to something, somewhere. It still doesn’t seem to matter what or where, but as noted here on Monday, almost no one’s been able to quantify the impact on margins yet. Eventually, that’ll be a problem.

Meanwhile, FT Alphaville — which is still engaged after all these years in a transparently desperate effort to mimic the editorial cadence of an outfit I helped run in 2015 — ran a blog post on Tuesday about Oracle’s runaway spending.

Initially, the title of their post read, “Oracle’s astonishing $300 billion OpenAI deal is now valued at minus $74 billion.” When I refreshed the page a while later, it read, “Oracle is already underwater on its ‘astonishing’ $300 billion OpenAI deal.”

At the bottom of the updated version, a footnote apologized for the original headline: “*Text tweaked at 2pm GMT to reflect a less clickbait headline.”

Suffice to say FT Alphaville tried to be clever. But it didn’t work out for them. Being clever.