Don’t assume Google’s sharp drop was just because its earnings disappointed!
Warsh’s remarks overnight had already planted the seeds for this valuation sell-off!
Warsh raised two key questions: Is AI capital spending going too far? Will high financing costs constrain big tech’s AI investments? In a nutshell, his view was that the AI boom can’t escape the pressure of high interest rates—just being involved in AI doesn’t mean you can spend money recklessly.
As I often say, the macro environment determines how expensive money is, while earnings determine whether investors are willing to pay a premium. The higher interest rates are, the less forgiving the market is of weak spots in earnings. What the market wants now isn’t just to know how much money a company has spent, but whether that investment will generate returns. It’s all about ROIC.
Warsh had just raised this concern, and then Google’s earnings landed right in the firing line. Google Cloud is growing rapidly, but spending is so aggressive that free cash flow has turned negative—perfectly illustrating the Fed’s concern about overinvestment in AI. That’s why the stock fell so hard. Looking at Amazon’s performance over the same period, all I can say is that timing is crucial.
Will all the high-spending AI stocks face valuation compression next? Want to keep an eye on upcoming big tech earnings and track how the macro environment is affecting the AI sector? Join the chatroom!
#FOMC会议 $GOOGL $SNDK $SKHYNIX
Warsh’s remarks overnight had already planted the seeds for this valuation sell-off!
Warsh raised two key questions: Is AI capital spending going too far? Will high financing costs constrain big tech’s AI investments? In a nutshell, his view was that the AI boom can’t escape the pressure of high interest rates—just being involved in AI doesn’t mean you can spend money recklessly.
As I often say, the macro environment determines how expensive money is, while earnings determine whether investors are willing to pay a premium. The higher interest rates are, the less forgiving the market is of weak spots in earnings. What the market wants now isn’t just to know how much money a company has spent, but whether that investment will generate returns. It’s all about ROIC.
Warsh had just raised this concern, and then Google’s earnings landed right in the firing line. Google Cloud is growing rapidly, but spending is so aggressive that free cash flow has turned negative—perfectly illustrating the Fed’s concern about overinvestment in AI. That’s why the stock fell so hard. Looking at Amazon’s performance over the same period, all I can say is that timing is crucial.
Will all the high-spending AI stocks face valuation compression next? Want to keep an eye on upcoming big tech earnings and track how the macro environment is affecting the AI sector? Join the chatroom!
#FOMC会议 $GOOGL $SNDK $SKHYNIX
