It’s Disgusting. I Hate It.

Confusion…

It’s everywhere. No one knows what to do.

Oil prices are climbing to multiyear highs. Gasoline is now $6 per gallon in some parts of the country. And Big Tech has lost a combined $2.9 trillion in market valuation.

The S&P 500 is below its 200-day moving average and everyone is convinced this will all blow over. Apparently, we will all go about our business just as we did before the Iran conflict started.

Here’s what won’t go away...

The relentless selling of the Big Tech winners of the past like Oracle, Microsoft, Meta (Facebook) and many more. These companies are undergoing a transformation from asset-lite profit volcanoes… to asset-heavy free-cash flow black holes.

If you include off-balance sheet liabilities, Amazon, Meta, and Oracle have negative free cash flow (FCF). That means if you bought the whole company – you, the owner – would be losing money every year.

Now, I get it. You have to invest money to make money. AI hyperscalers are expected to spend an estimated $5 trillion combined over the coming years on AI infrastructure.

But when you peel back the curtain on the returns, they are ugly.

Based on our analysis, if we attribute half of Meta’s 6% ad pricing growth to AI infrastructure, that implies a 3.5% return on $72 billion deployed.

Even if we say all of the ad pricing growth came from AI, that’s still only a 7% return on $72 billion in spending.

To put that in perspective, Exxon Mobil, a huge heavy industry oil major, expects to make 30% on its capital spending programs.

I’ll concede the economics of Meta’s business far exceed Exxon Mobil’s. (Meta has gross margins of 41% vs. Exxon’s 24%.) What I am saying is there has been no dramatic improvement to Meta’s earnings from its AI spend.

And here’s the really bad news: There may never be. And that’s what is killing the stock prices of not just Meta – but every other Big Tech player that can’t draw a straight line between their AI spend and their earnings.

The bulls will say the tech giants can just dial back their AI spend anytime they want, and FCF will explode higher. True.

But what would happen to the stock price if Meta announced tomorrow that it’s cutting $50 billion from its AI spend?