Investors are genuinely concerned that these companies are in the midst of destroying some of the most successful, scalable, investor-friendly business models the equity market has ever seen.
— Mike O’Rourke, JonesTrading
That’s the zeitgeist right there. Mike captured it perfectly over the summer in a remark The Wall Street Journal preserved for posterity by awarding it a dedicated page — as though O’Rourke hauled it down the mountain chiseled into a stone tablet.
Mike’s a little surly for my tastes. As far as I can tell, he’s never joking, which makes his evening mailer read like a list of complaints compiled by the neighborhood curmudgeon and posted daily to the HOA Facebook group.
Don’t get me wrong: O’Rourke’s “The Closing Print” series is highly informative, but… well, “Yes, Mr. Jenkins, we noticed the fountain in the front pond still hasn’t been fixed, and the hedges by the entrance could use a trim, but we can’t let either ruin our Friday night.” (To be fair, Mike doesn’t publish “The Closing Print” on Fridays.)
Anyway, this week was a testament to O’Rourke’s contention that investors view the hyper-scalers’ rapid transformation from capital-light cash machines to capital-intensive cash burners as an existential risk.
Other than Alphabet, which plunged the most since the original COVID crash, the losses weren’t huge, and indeed Oracle managed a gain thanks (tellingly) to reassurances about its free cash flow trajectory. But the mood’s unmistakably dour. Like “The Closing Print.” Have a look at this:
That, in a nutshell, is the problem. These companies are raising debt and becoming suppliers of equity.
“Hyper-scaler debt issuance surged to $182 billion in 2026 versus $17 billion in 2024,” BofA’s Michael Hartnett casually remarked on Friday. “$89 billion in hyper-scaler equity issuance in 2026 means the era of big stock buybacks is over,” he added. (Note that between them, Meta and Alphabet announced plans to raise almost $200 billion in new equity.)
Again, this is the polar opposite of how these companies used to run their businesses, and that speaks to O’Rourke’s point. Rarely, if ever, in the history of capitalism has a cohort of companies behaved so favorably towards shareholders as mega-tech pre-ChatGPT.
Then, virtually overnight, the same group of companies overhauled their business models and are now in the process of leveraging their balance sheets and issuing hundreds of billions in new shares while jockeying for pole position in the race to build a technology that could cure every human disease, annhilate the species or any outcome in-between.
Meanwhile, Apple continues to hit new records by sticking assiduously to the post-Steve Jobs hardware playbook, which boils down to releasing cooler versions of products someone else released five or more years previous.
I do wonder if this will play out similarly to Meta’s ill-fated metaverse venture (except now we are dealing with a real product). What would happen if these companies decided to significantly scale back their data center ambitions and let the cashflows become the free-flowing river systems of yesteryear?
I think the distinction is that, then Facebook, decided the Metaverse was going to be a big deal before validating that theory. Conversely, there isn’t a business on the planet that isn’t trying to figure out how to harness the capability of LLM’s to give them an advantage. Because the scale of the demand is so great, the capacity required to meet that demand is consequentially impacting balance sheets. If the demand wanes, this will end as badly as everyone expects. If the demand continues or grows (owing to the ease with which anyone can stand up a digital AI native product) the investment will seem minuscule in comparison to the returns.
I’m in the demand will continue to grow camp. LLM’s for all of their faults, enable humans to scale beyond their own limitations in ways unimaginable 5 years ago. For businesses, harnessing the capability in a reliable way is proving complicated, but the drive to achieve this outcome will likely make it a reality.
I’ve long tired reading about how AI is going to deliver an endless parade of medical breakthroughs. Try to do an LLM search for the amount of datacenter capacity is being used by biomedical researchers. (Don’t forget that if you can only find figures for the broader healthcare sector, those include insurers like UHC who are adopting AI to reject more claims.)