SENTIMENT SHIFT
Red Flags Stacking Up, Bank of America
This week’s price action has been led by a major rotation, a rotation that could mark the beginning of a new trend in financial markets.
It’s no secret that the auction has decoupled from the economy and its data, which tends to happen from time to time.
But eventually, the market returns to the undeniable truth of investing:
All assets are based on their ability to generate cash flow
Because underlying economic conditions, from higher bond yields to heating inflation, show a worsening environment.
We believe that most businesses (especially the AI names) will have a hard time justifying their valuations as free cash flow vanishes.
Bank of America analysts know this, and have used the matrix above to warn their clients and advise them to sell stocks now.
Then you have the SpaceX IPO, for which an estimated $5 trillion need to be raised out of the market, adding pressure to the current pullback.
We don’t need to get into all of that…
What we do need to get into is the BIGGEST elephant in the AI room:
AI companies have racked up over $3 trillion in commitments
While only generating $100 billion in annual revenue
That’s a 30x mismatch, which is getting worse now that companies like Microsoft and Uber have pulled back on their AI usage budgets.
Today is our first post in a series that covers the entire AI trade, so pay attention.
Because it’s all beginning to look like Enron, the 2008 crisis, and 1929 combined.
And it all starts with NVIDIA and its radioactive balance sheet, which is now 50% made up of stakes in other companies who use these investments to buy the chips NVIDIA can’t sell.
So the question is…
Is the AI demand actually real?
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