‘Marching Towards Default’: Market’s Weakest Link Revealed | David Busch

Meta Platforms

Across the shows: 43 speakers in other episodes, 42 bullish and 19 bearish calls, past 30 days

• David Busch · Trajan WealthBearish

  Meta's negative free cash flow from AI build-out is punished; payoff on invested capital is far off.

  Busch says investors punished Meta for negative free cash flow despite strong revenue growth because of massive capex to build physical infrastructure. Investors want a return on invested capital. Capex, higher debt loads and higher interest rates are causing earnings compression. Asked whether the payoff is near, he says 'we're a ways away from that tomorrow.' He still calls the spending necessary to compete globally, so the view is skeptical near term and accepting long term.

  “I think we're a ways away from that tomorrow. And the way that I view it is the reason investors are sort of punishing them is they wanna see that return on investment, that return on invested capital.”at 7:26

CoreWeave

Across the shows: 49 speakers in other episodes, 12 bullish and 44 bearish calls, past 30 days

• David Busch · Trajan WealthBearish

  CoreWeave's bonds yield near 15%, priced like equity risk; the market signals rising default risk.

  CoreWeave's bond yields are near 15%, which Busch calls equity-like returns and therefore equity-like risk. He charted its yield against the B+, B-, and CCC curves. The yield is roughly 500 basis points above even the CCC curve, so the market is pricing a higher default risk. Busch stresses he is not saying default is imminent. He says CoreWeave can recover with funding from larger hyperscalers, likely outside public markets, because public bond pricing at 15% makes that funding costly.

  “And in the case of CoreWeave, it's marching towards default. ... I'm not saying that CoreWeave is at a risk of default.”at 13:45

Intuit

• David Busch · Trajan WealthBullish

  As a thought exercise, Intuit's AI-disruption sell-off looks overdone; its own AI efficiencies could help.

  Intuit fell roughly 50% earlier this year on fears that Claude and other AI tools would disrupt it. Busch argues that TurboTax users who have relied on the product for 10 to 15 years are unlikely to use AI to build their own tax software. Startups could still compete, but Intuit is more likely to capture AI efficiencies that lower its costs, which could help it perform well. He explicitly frames this as a thought exercise and not a recommendation.

  “if people use TurboTax and they've used TurboTax for the last ten or fifteen years, They're not gonna use an AI to build their own [tax] software. ... that's just a thought exercise and and not a recommendation.”at 17:00

AI infrastructure & data centers

• David Busch · Trajan Wealth

  Utilities, materials and industrials have caught an AI build-out tailwind; he'd rethink them if it slows.

  Phase one of AI lifted tech companies and chipmakers, and phase two, the infrastructure build-out, has lifted traditionally value-oriented sectors such as utilities, materials and industrials. These companies are now behaving more like growth stocks. Busch says if the AI infrastructure build-out and AI monetization slowed, he would reevaluate each sector and look for projects outside AI infrastructure.

  “Phase two is sort of underway now, which is the AI infrastructure build out. And a lot of those sectors that have historically been viewed as value sectors, like utilities and materials and industrials, have really caught a tailwind based on this AI infrastructure build out.”at 5:41

• David Busch · Trajan Wealth

  Hyperscaler capex funded with debt at high rates compresses earnings, so expect earnings volatility for years.

  Hyperscalers are planning massive capex in the face of higher interest rates, creating a lot of debt for the build-out. Investors are watching earnings closely to judge revenue growth and monetization of AI against higher capex and rates. Busch says the build-out and technology development will play out over the next couple of years, bringing volatility around earnings announcements. He advises long-term investors not to overreact to sell-offs, particularly in tech.

  “they're making plans for massive capital expenditures in the face of higher interest rates. And so there's a lot of debt associated with this build out.”at 6:20

US Treasuries & yields

• David Busch · Trajan Wealth

  With multi-decade-high yields, favor 3-5 year Treasuries and IG corporates; avoid long-duration bonds.

  Yields are at multi-decade highs, letting investors lock in income. Bonds can also act as a ballast if stocks sell off, since the stock-bond correlation averages around 0.25 to 0.35. Busch prefers the three-to-five-year part of the curve because ten-to-thirty-year Treasuries carry heavy duration risk. A 30-year bond with duration of 20 to 25 would move roughly 20 to 25% for each 1% rate change. He favors higher quality, specifically IG corporates, Treasuries and agencies, and avoids riskier bond sectors.

  “the sweet spot right now is in that three to five year part of the curve. ... going out that ten to thirty year part of the curve, there's a ton of duration risk.”at 2:43

Enterprise AI adoption & AI software

• David Busch · Trajan Wealth

  Companies adopting AI, including financials and software firms, are the next leg as AI boosts their profits.

  After chips and AI infrastructure, Busch sees the third phase of his AI thesis in companies that adopt AI. Financials and software companies could use AI to become more profitable and efficient. He says this is where the next leg of the trade is, and that AI adoption should be a sizable boost to the economy through efficiency.

  “Phase three and where I'm watching closely is who's gonna be the adopters of AI technology and who can benefit to make their companies more profitable and efficient with this technology. And I think that's really where the next leg of this trade is.”at 5:56

US–China AI & chip race

• David Busch · Trajan Wealth

  Competition with China in AI means the US must build out AI infrastructure to stay competitive.

  Busch compares the AI race to the late-1990s search engine contest, where Google beat Netscape, AOL and Yahoo. He says competition is now global, especially with China and its AI technology. He argues the US must build out AI infrastructure because fierce global competition makes it necessary, and says it is not yet clear who will win.

  “ultimately, as a country, we have to build out this infrastructure because there's fierce competition globally.”at 10:51

Credit markets

• David Busch · Trajan Wealth

  Heavy bond issuance funding AI capex is pulling demand from investment-grade bonds and Treasuries.

  Hyperscalers are issuing large amounts of debt to fund capital expenditures on AI infrastructure. Busch says this bond supply is taking demand away from investment-grade corporate bonds and Treasuries, a mechanism that can weigh on those markets.

  “with all of the supply of bonds being issued to fund this capital expenditures, one, it's taking some demand away from investment grades and treasuries.”at 13:18

US inflation

• David Busch · Trajan Wealth

  US inflation is energy-driven by the Iran conflict, not demand, so the Fed can't fix it.

  Busch says inflation is caused by geopolitical risk from the Iran conflict, which the Fed cannot resolve. Oil prices have skyrocketed, raising gasoline and diesel prices. Diesel is embedded in manufacturing and agriculture, lifting producer and consumer prices. Unlike post-pandemic demand-driven inflation, this is scarcity-driven, so the Fed can only raise rates to curb demand. Tariffs and trade wars add near-term inflation. If the conflict were resolved and energy infrastructure rebuilt, energy prices would fall and become deflationary.

  “The issue with where inflation is today is that it's caused by the geopolitical risks associated with the conflict in Iran. There's nothing that the Federal Reserve can do to resolve that conflict.”at 20:17

Oil & fuels

• David Busch · Trajan Wealth

  The Iran conflict drove oil sharply higher; resolving it and restoring supply would lower energy prices.

  The Iran conflict caused oil prices to skyrocket this year, leading to higher gasoline and diesel prices. Diesel is used throughout manufacturing and agriculture, so these costs flow into producer and consumer prices. If the conflict were resolved, infrastructure rebuilt, and oil and refining capacity restored, energy prices would come down and become deflationary.

  “And that conflict has caused oil prices to skyrocket over this year, which has led to higher gas prices, higher diesel prices.”at 20:33

Tariffs & trade policy

• David Busch · Trajan Wealth

  Tariffs are inflationary in the near term and deflationary over the long term as consumers pull back.

  Busch says tariffs and trade wars are inflationary in the near term, layered on top of energy-driven inflation. Over the long term, they become deflationary because consumers pull back spending. He frames this as a dynamic that has so far been inflationary.

  “And then you layer on top of that tariffs and trade wars, which are in the near term inflationary. Ultimately, over the long term, they're deflationary because consumers pull back.”at 21:20

US jobs & labor market

• David Busch · Trajan Wealth

  The US labor market is starting to crack; payrolls grew only 29,000 and wages lag inflation.

  Average hourly earnings are not keeping pace with inflation. Nonfarm payrolls showed only 29,000 new jobs. Busch concludes the labor market is starting to crack, and the Fed must weigh this against inflation under its dual mandate.

  “Average hourly earnings are not keeping pace. We saw nonfarm payrolls was at 29,000 new jobs. So the labor markets are starting to crack.”at 22:11

US rates & the Fed

• David Busch · Trajan Wealth

  Fed likely pauses in October, hikes in December, and possibly hikes once or twice next year.

  The Fed has a dual mandate and faces a conflict between energy-driven inflation and a cracking labor market. Inflation is scarcity-driven from energy and tariffs, which the Fed cannot fix. Payrolls grew only about 29,000 and wages are not keeping pace. Busch expects the Fed to pause in October, potentially raise in December, and maybe deliver one or two hikes in the first and second quarters of next year.

  “So I think from that perspective, they're going to pause in October, and then potentially raise in December. And maybe we'll even get one or two rate hikes next year in the first and second quarter.”at 22:27

Consumer & retail

• David Busch · Trajan Wealth

  Consumer staples should beat discretionary as middle-income shoppers trade down to lower-cost retailers and food.

  In a K-shaped or two-speed economy, middle and upper-middle-class consumers are switching from higher-priced goods to lower-cost goods. Lower-cost retailers and food providers are catching a tailwind. The ultra-rich will keep buying luxury goods, but staples should win out as interest rates rise, the economy slows and unemployment increases.

  “consumer staples should win out if especially as we head towards potential higher interest rates, potential slowdown in the economy, higher unemployment rates.”at 25:58

US growth & recession risk

• David Busch · Trajan Wealth

  Consumers and businesses will pull back, bringing slower growth and higher unemployment over several quarters.

  Consumer resilience has surprised Busch so far, but rising prices for food and goods are eating into earnings power. He expects consumers and businesses to eventually pull back, leading to an economic slowdown and higher unemployment. That would eventually bring inflation down to the Fed's 2% target, though he says it will take time. He expects slower economic growth over the next several quarters. He flags it as his opinion.

  “I think that ultimately what's going to happen, and this is, again, just my opinion, is that eventually, it has to... Things have to change. Consumers will start to pull back. Businesses will start to pull back. And when that happens, we could see a [an] economic slowdown.”at 29:17