Who Pays for the AI Boom? Big Tech’s Financing Problem

Meta Platforms

Across the shows: 62 speakers in other episodes, 49 bullish and 35 bearish calls, past 30 days

• Tim Travis · Value Options LetterBullish

  Meta is very compelling; its Muse assistant and huge distribution can reach older users.

  Tim says Meta has a big hit on Muse. He uses it personally and finds it handy. He thinks it could be adopted by older Facebook and Instagram users who are less comfortable with other AI platforms. Meta's distribution network lets it reach a large audience quickly, which is why he likes Meta's position. He also calls the valuation very compelling.

  “Meta, very compelling. I think that they have a big huge hit on Muse. I use it, for personal stuff, and I think it's quite handy. I could totally see it being adopted by older users of Facebook and Instagram... they can get out to a lot of people.”at 2:43

• Tim Travis · Value Options LetterBearish

  Meta can't afford 9% debt and keep subsidizing Muse, so its AI spending is unsustainable.

  Tim argues the financing is strained. Meta's debt would cost around 9%, and Meta cannot afford that while also subsidising Muse. Meta is losing a lot of money on the product, as Anthropic does with Claude. He expects the market to realise this soon, so the spending does not look sustainable at current borrowing costs.

  “Meta can't afford to pay 9% debt. That's for sure, to do this, you know, and still subsidize Muse. ... they're losing a ton of money on this stuff.”at 9:17

SK Hynix

Across the shows: 4 speakers in other episodes, 3 bullish and 0 bearish calls, past 30 days

• Tobias Carlisle · Acquirers Funds / The Acquirers PodcastUncertain

  SK Hynix may be cyclical and over-earning now, so it may not be a good time to buy.

  Tobias lists SK Hynix among the big winners from the AI build-out. He asks whether it is cyclical. If so, it looks cheap at cycle tops, it is currently over-earning, and it trades on a modest multiple, so now is not a good time to buy. He concedes that AI may make chip demand secular, so he remains uncertain.

  “Micron and SK Hynix and those kind of names... are these cyclical... at the top of their cycle, they look cheap, and at the bottom of their cycle, they look expensive... So they're over earning at the moment... So perhaps not a good time to buy them”at 4:34

• Tim Travis · Value Options LetterBearish

  SK Hynix is vulnerable: falling AI chip prices and rising supply would hurt it like a commodity producer.

  Tim argues that if hyperscalers cannot raise capital affordably, demand for chips falls and supply picks up as in-house TPUs grow. Historically that pattern has hit commodity-type producers, and SK Hynix is among those he calls vulnerable.

  “I could easily see, that if you get prices going down a little bit, a little less demand, a little more supply, how that historically has impacted, commodity type companies such as a Micron or an SK Hynix... I think that there's a lot of vulnerability there.”at 8:48

Micron Technology

Across the shows: 15 speakers in other episodes, 11 bullish and 6 bearish calls, past 30 days

• Tobias Carlisle · Acquirers Funds / The Acquirers PodcastUncertain

  Micron may be cyclical and over-earning now, so it may not be a good time to buy.

  Tobias says Micron and SK Hynix are among the big winners. If they are cyclical, they look cheap at the top of the cycle and expensive at the bottom, and they are currently over-earning on a modest multiple. That makes it a poor time to buy. He is unsure whether AI makes them a secular grower, so he does not give a firm call.

  “Micron and SK Hynix and those kind of names... are these cyclical... at the top of their cycle, they look cheap, and at the bottom of their cycle, they look expensive... So they're over earning at the moment... So perhaps not a good time to buy them”at 4:34

• Tim Travis · Value Options LetterBearish

  Micron is vulnerable: falling AI chip prices and rising supply would hurt it like a commodity producer.

  If hyperscalers struggle to fund their capex, demand for Nvidia and Micron chips falls. Hyperscalers are also building their own TPUs. Tim expects supply to rise. Historically, falling prices with less demand and more supply have hit commodity-like producers, and he sees a lot of vulnerability in Micron. He notes that could make the AI build-out more affordable.

  “I could easily see, that if you get prices going down a little bit, a little less demand, a little more supply, how that historically has impacted, commodity type companies such as a Micron or an SK Hynix... I think that there's a lot of vulnerability there.”at 8:48

Anthropic

Across the shows: 75 speakers in other episodes, 91 bullish and 65 bearish calls, past 30 days

• Tobias Carlisle · Acquirers Funds / The Acquirers PodcastBullish

  Anthropic's $80B loss is mostly accounting; Anthropic and OpenAI seem to lead the race.

  Tobias says the headline loss of about $80B in six months, against $16B of revenue, is not as bad as it sounds. The loss comes from accounting for the conversion of convertible notes into equity, not cash spending. He still calls the numbers very large. He also says Anthropic and OpenAI seem to have the lead in the AI race at the moment.

  “the initial sort of shock of that loss, it's not quite as bad as it sounds because... Evidently, it's some accounting treatment of the conversion of the convertible notes into equity that creates that.”at 10:22

• Tim Travis · Value Options LetterBullish

  Anthropic is in a great position with an impressive product, but spending heavily to compete.

  Tim saw the summaries of Anthropic's IPO filing. He points to the large cash balance and an IPO that should add more. He calls the company impressive, with an impressive product, and says it is in a great position. He qualifies that by noting it is spending a lot, and that competing in this field requires heavy spending. He thinks it may reach the IPO market ahead of OpenAI.

  “They're in a great position. I mean, it's an impressive product, an impressive company, but they're spending a ton of money. ... to play in this field, I mean, you really have to spend a lot of money.”at 10:43

Netflix

Across the shows: 17 speakers in other episodes, 9 bullish and 14 bearish calls, past 30 days

• Tim Travis · Value Options LetterBullish

  Netflix's valuation is attractive; it has not lost its content edge and can get back on track.

  Tim thinks the valuation is pretty attractive at this price. He argues Netflix has not lost its edge in producing good content, though it needs a few hits, and live programming helps keep subscribers. He criticises the content mix as polarising and less varied than YouTube's, and says it has not capitalised on its past hits. The value options letter has held Netflix trades, including puts and covered calls.

  “I think their valuation is pretty attractive, Toby. I think that at this price, I think they can get back on content. I don't think that they've lost their edge there as far as like their ability to put out good stuff.”at 28:58

• Tobias Carlisle · Acquirers Funds / The Acquirers PodcastBullish

  Netflix's valuation is getting interesting: about 4% free cash flow yield with decent growth.

  Tobias says Netflix's free cash flow yield was about 4% last time. That is a little below the 10-year yield, but the business still has decent growth, so it probably grows faster than GDP for a long time. Growth is less than in the past, but the problems are fixable and it is a high-return business. He does not hold a position, but he finds it an interesting stock to consider.

  “I think that valuation's getting sort of interesting here. I think free cash flow yield last time... it was, like, 4%, which is... a little bit below the ten year, but it's still got pretty good growth in it.”at 29:42

Amazon.com

Across the shows: 29 speakers in other episodes, 38 bullish and 6 bearish calls, past 30 days

• Tim Travis · Value Options LetterBullish

  Amazon is very compelling at current valuations, one of the world's best businesses.

  Tim describes Amazon as one of the best businesses in the world. He says the Google, Amazon and Meta group can be bought on a high-teens or low-twenties earnings multiple, which he finds really attractive. He likes most of the megacaps at these valuations, with Amazon standing out.

  “I like them. I like most of them... Amazon's very compelling at the current valuations.”at 2:37

Alphabet

Across the shows: 44 speakers in other episodes, 33 bullish and 25 bearish calls, past 30 days

• Tim Travis · Value Options LetterBullish

  Google is interesting; AI threatens search, but its leadership and investment should protect it.

  Tim sees real headwinds. AI tools could disrupt Google search and affect positions in search and YouTube. But Google is still very strong, a leader that can invest the most, and it spends heavily because it has to protect its competitive position. On balance he finds the stock interesting, though the headwinds are real.

  “I think Google's interesting. There's definitely headwinds, Toby. ... So you could see that it disrupts positions potentially, but they're still so strong. ... they're leaders, and they're able to invest the most.”at 3:13

NVIDIA

Across the shows: 49 speakers in other episodes, 39 bullish and 16 bearish calls, past 30 days

• Tim Travis · Value Options LetterBullish

  Nvidia looks cheap if its earnings prove sustainable.

  Tim says Nvidia is cheap if you believe its earnings are sustainable. The conditional matters. Hyperscalers are building their own TPU chips to compete with Nvidia's GPUs, and capex financing is getting harder, so the earnings base is less certain than the valuation suggests.

  “If you believe in the earnings are sustainable, like, NVIDIA is cheap, the one that sticks out is Apple.”at 16:38

AI infrastructure & data centers

• Tim Travis · Value Options Letter

  Hyperscaler capex now needs costlier debt and equity; stocks selling off as financing shifts.

  Hyperscaler capex is in the hundreds of billions, so operating cash flow and buybacks no longer cover it. Debt has become much more expensive: long-dated Meta and Oracle bonds at roughly 7% to 9%, and CoreWeave borrowing at about 15%. Companies are also using off-balance-sheet vehicles. Meta alone may raise close to $100B in equity across this year and next, so the stocks are selling off as financing moves to equity. Valuations look interesting only if you are bullish on the return on this capex.

  “But because the CapEx expenditures are so large, I mean, we're talking hundreds and hundreds of billions of dollars, the debt markets have gotten a lot more expensive. ... a company like CoreWeave, is financing itself at, 15% in the debt markets.”at 1:13

• Tobias Carlisle · Acquirers Funds / The Acquirers Podcast

  Spenders lack revenue to match AI capex, so capital raises are needed; chip earnings are flattered for now.

  Money from OpenAI and the hyperscalers flows to chipmakers such as Nvidia, which flatters their short-term earnings. The companies doing the spending do not yet have the revenue to match it, which is why they are raising capital. Tobias thinks they will probably eventually earn returns on this capex, but in the interim the situation is complex and fragile.

  “And it's all going to the chipmakers, NVIDIA, all of those companies are doing really well, and so it's flattering their earnings in the short term. ... But the companies doing the spending don't currently have the revenue to meet that spending, which is why they're doing the capital raises.”at 5:39

AI bubble & tech valuations

• Tobias Carlisle · Acquirers Funds / The Acquirers Podcast

  AI may resemble the early-2000s: real, secular technology, but a market crash is still possible.

  Tobias says the scenario could look like the early 2000s: the technology is real and will grow for decades. But a stock market crash can still happen in the middle, and valuations can come back. He notes that the biggest names are now the entire market, so a crash would largely mean those names falling. He admits he does not know the answer.

  “a sort of early two thousands type scenario where the technology is real and it is going to grow in a secular way for decades potentially. But at the same time, you can still have stock market crash in the middle.”at 6:16

• Tobias Carlisle · Acquirers Funds / The Acquirers Podcast

  The Magnificent Seven are not overvalued; many have reasonable valuations and look good.

  Tobias separates the stock market's pricing of AI from the businesses. He says the Magnificent Seven are not overvalued and have many reasonable valuations. Some of the names are the beneficiaries of capex spending, so the market could come back to them even without a crash.

  “I think that the Mag seven are not overvalued. There's lots of reasonable valuations, and they look pretty good in there.”at 6:43

US housing

• Tim Travis · Value Options Letter

  US housing is in a terrible state for affordability and transactions; property investment is weak.

  Tim describes the housing market as in a terrible state, with poor affordability and transaction volumes. Almost every type of property investment is down. He thinks this is good in the long run because it reduces the supply overhang in some sectors, such as apartments.

  “Like, you have the housing market, you know, that's in a terrible state in terms of affordability and transaction sales. ... almost every type of property investment is down. So ultimately, that's gonna be good to reduce the supply overhang.”at 19:13

• Tobias Carlisle · Acquirers Funds / The Acquirers Podcast

  Pandemic-era low-rate mortgage lock-in keeps homeowners from moving and prices high, locking out buyers.

  Tobias argues the housing market is still an overhang from the pandemic. Rates fell so low that people locked into them and cannot move, so the houses that do trade sell at very high prices. That excludes a huge portion of the population and adds to the k-shaped economy and inequality.

  “I think the housing market is still an overhang from that period because rates got so low. People got locked into those low rates. ... houses that do trade trade at very high prices, which locks out a huge portion of the population.”at 20:07

AI & jobs

• Tim Travis · Value Options Letter

  Trades like plumbing are AI-proof for now; service-call jobs are highly vulnerable to AI.

  Tim says welders, plumbers and construction workers are AI-proof for now. He illustrates the vulnerability of service centres with a refrigerator repair that took six visits, with the technician calling a home office to be walked through each step, before the appliance was replaced. He thinks those service roles are highly vulnerable, and that productivity will keep improving. He also expects new jobs to be created while many are destroyed.

  “Now if you're a welder or a plumber, that's a phenomenal field to be in or in construction... Those are AI proof, as of now... those service centers and things like that are highly vulnerable. So I think the productivity is gonna get better and better for sure.”at 12:05

AI: overall outlook

• Tobias Carlisle · Acquirers Funds / The Acquirers Podcast

  We are close to the singularity: AI will soon build better AI and then robots will do physical labor.

  Tobias cites AI labs such as OpenAI, Anthropic and xAI, whose leaders say AI is already improving itself and that this will be automated in the very near future. He points to AI systems solving math problems that have been open for centuries, with creative cross-domain solutions. From this he concludes the last tool humans need to build is close, and robots will follow to do physical labor.

  “I still think that we're close to this point where we build the last tool we'll ever have to build, which will be this AI, and then we're gonna build robots that do the physical labor.”at 15:46

Middle East & Iran

• Tim Travis · Value Options Letter

  The Iran and Russia wars raised energy prices, and high energy prices are behind most of the economic problems.

  Tim argues the economy could be doing much better without the Iran war and the Russia war, which pushed up energy prices. Most of what is going badly in the economy traces back to high energy prices, including the housing market. He thinks a positive resolution to the wars would be huge.

  “what this economy could be doing without, the Iran war, without the Russia war, that impact on energy prices... the stuff that's going bad is almost mostly a relation of high energy prices.”at 18:50

Power demand & the grid

• Tobias Carlisle · Acquirers Funds / The Acquirers Podcast

  Rich, technologically advanced nations will need much more power, and oil and gas will still be needed.

  Tobias argues that every nation that gets richer needs more power in step with its wealth, with no poor low-energy nations. The more technologically advanced a society is, the more power it needs. He thinks oil and gas will still be needed to get there, and that land and the businesses that supply these needs will persist.

  “We're still gonna need enormous amounts of energy and power. ... There are no rich, low energy nations. ... They get they need more and more power.”at 24:14

Commercial real estate

• Tim Travis · Value Options Letter

  Long-term bull on real estate: commercial property valuations are attractive versus residential.

  Tim sees a dichotomy between commercial real estate valuations and the residential housing market. For a long-term investor, there are buys now that can make a lot of money over ten to twenty years. REITs sell off when rates rise, as they did on a day the Fed held and yields rose, so investors must accept short-term pain for long-term benefits.

  “If there's such a dichotomy between commercial real estate valuations and what's going on in the residential housing market. If you're a long term bull on real estate, I think that you can find buys right now... over the next ten, fifteen, twenty years.”at 26:02