Avoid thoughtless posting - imagine a post that you would find inspiring from others, then aim for that standard yourself. In this way the board will blossom.
- Manlobbi
Stocks A to Z / Stocks B / Berkshire Hathaway (BRK.A)
No. of Recommendations: 6
Tangential to Berkshire (I hope), but reading some of these articles about new derivatives being created to back the demand for "hyperscaler" build-out caused a flashback to the 2007-2008 GFC and Warren's view of derivatives as instruments of financial mass destruction:
"As big tech companies raise hundreds of billions of dollars to fund artificial intelligence investments, Wall Street banks are increasingly finding they have to trade more credit derivatives to keep doing business with the hyperscalers." --
https://finance.yahoo.com/markets/options/articles...The second article also speaks to what sounds like securitization of these instruments, another feature of the GFC era:
https://economictimes.indiatimes.com/markets/us-st...
No. of Recommendations: 20
Interesting article in the FT a few days ago, talking about the problematic economics of what the biggies are doing.
The Impossible Maths of the AI Boom
from
https://www.ft.com/content/32bf8935-8d21-4689-ae34..."...Indeed, the US economy is growing solely because of the tech boom. I calculate that over the past four quarters, 93 per cent of US GDP growth was explained by tech investments. Even at the peak of the TMT bubble, it barely reached 60 per cent.
...
"Hyperscalars Microsoft, Alphabet, Amazon, Meta and Oracle* plan to invest hundreds of billions in the next five years in data centres to provide the computing power to tun these models.
This is where the maths of the AI boom becomes challenging. For each hyperscaler, I collected the consensus estimates of analysts for the capital expenditures and revenues between 2025 and 2030.
In these five years, capital investments are expected to rise by 20 per cent a year, a growth rate never seen before in this industry. Revenues are expected to grow 15 per cent annually. If we make the heroic assumption that there are no costs, then the additional revenue is the profit that these companies are set to make from their additional investments in AID data centres.
Yet, even under these extremely optimistic assumptions, I calculate the implied return on investment is highly negative for all of them, except Amazon.
These number show that, if the hyperscalers continue on the current trajectory, the AI boom will become a story of one of the largest destructions of shareholder value in history..."Maybe they should be called subscalers rather than hyperscalers? The attractions of the firms was traditionally that their unit economics improved with size: not much incremental capital required to support an incremental user. But this now may not only have ceased being true, but even gone into reverse in some cases. Though perhaps only for a while, who knows.
At the very least, free cash flow yields are under pressure. i.e., tanking. From an article elsewhere:
"Wall Street forecasts show the combined free cash flow of Amazon, Alphabet, Microsoft, and Meta could drop to around $4 billion in the third quarter. This marks a dip from the quarterly average of $45 billion since the COVID-19 pandemic."Jim
* O, MAMA.
No. of Recommendations: 2
yields are under pressure. i.e., tanking
I needed a laugh this morning. Thanks, Jim
-- sutton
No. of Recommendations: 9
I needed a laugh this morning.I admit to lurking at the UK Policy board sometimes. It's often shrill and rude, but on the other hand there is some actual information interspersed that's interesting. Random example:
US Consumer Sentiment officially falls to its lowest level on record going back to 1952, down another -10% last month. Consumers now expect inflation to rise 4.8% over the next 12 months. This puts the Consumer Sentiment index down -21% since February 2026, before the Iran War.I looked it up to make sure it was correct (it is), and discovered that essentially none of the recent fall has been among Democrats, which I found interesting.
Anyway, that's where I found this for my own morning chuckle
https://www.shrewdm.com/MB?pid=526274261Kroger is of course a Berkshire holding, so it's tangentially tangentially on topic.
Jim
No. of Recommendations: 6
Maybe they should be called subscalers rather than hyperscalers? The attractions of the firms was traditionally that their unit economics improved with size: not much incremental capital required to support an incremental user. But this now may not only have ceased being true, but even gone into reverse in some cases. Though perhaps only for a while, who knows.
And their past unit economic improvements were largely from growing their individual (quasi-)monopolies. Whereas their massive AI investments are largely to compete with each other in similar markets, apparently.
No. of Recommendations: 2
No. of Recommendations: 2
The Impossible Maths of the AI Boom
from https://www.ft.com/content/32bf8935-8d21-4689-ae34...
Is a free or gifted link available to this article? Appreciated if its possible.Just google "The Impossible Maths of the AI Boom"
Find the link, and you can read the entire article.
No. of Recommendations: 3
"free cash flow yields are under pressure. i.e., tanking. From an article elsewhere:
"Wall Street forecasts show the combined free cash flow of Amazon, Alphabet, Microsoft, and Meta could drop to around $4 billion in the third quarter. This marks a dip from the quarterly average of $45 billion since the COVID-19 pandemic."
And yet Berkshire tripled their GOOGL (+GOOG) position in Q1. Apparently they weren't concerned about their "tanking" free cash flow yield. What do they know that we don't?
No. of Recommendations: 18
And yet Berkshire tripled their GOOGL (+GOOG) position in Q1. Apparently they weren't concerned about their "tanking" free cash flow yield. What do they know that we don't?
How to invest with a long time frame?
A very high valuation level compared to its own history, and a huge weight from the capital needed in the next few years. And yet, if (if) those are issues that go away in the next few years, they will still be in business and generating remarkable value per share for decades to come. I don't know if things will work out that way, but I presume that is the thinking. Head office is probably reacting to the rally since March as "Dang, we'll have to stop buying for a while".
I sold my last shares not long ago due simply to valuation concerns, but the very best long term investors don't do that when the firm has serious staying power. One of the things they know that I don't. That's not necessarily a paradox: Berkshire and Alphabet will outlive me.
Jim
No. of Recommendations: 0
"And yet Berkshire tripled their GOOGL (+GOOG) position in Q1. Apparently they weren't concerned about their "tanking" free cash flow yield. What do they know that we don't?
How to invest with a long time frame?"
And more specifically, maybe they think there will be a decent return on the massive amount of capital being deployed, which in turn is causing cash flow yield to "tank" in the short term?
No. of Recommendations: 5
"Wall Street forecasts show the combined free cash flow of Amazon, Alphabet, Microsoft, and Meta could drop to around $4 billion in the third quarter. This marks a dip from the quarterly average of $45 billion since the COVID-19 pandemic."
Really? A 92-ish% reduction in FCF? Not reduced *by* $4b, which would be bad enough, but *to* $4b? I think I would run from such a segment.
Bias alert - I own none of them other than via an index, nor would I buy them anyway (a case of I might like the companies but I don't like the numbers), though we do business with Amazon as a publishing platform and have for about 20 years, and I've used them for nearly 30 years for purchases.
