Technology & Telecommunications

This week, the market’s most irrepressible bull, Ed Yardeni published another blog promoting his bullish thesis entitled, Peak Fear? Peak Yields? Peak Earnings? Peak AI?, alongside co-author Elias Griepentrog.

The headline gives away the framework because Yardeni and Griepentrog immediately answer the four questions in order:

Peak Fear? Yes.
Peak Yields? Maybe.
Peak Earnings? No.
Peak AI? No.

Let’s look at each argument in turn. continue…

by Roger Montgomery Posted in Economics, Market commentary, Market Valuation, Technology & Telecommunications.

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If you haven’t noticed already, allow me to point out that investment discussions about artificial intelligence (AI) frequently devolve into almost insulting debates between AI evangelists, who cite massive total addressable markets (TAM) and explosive user growth, and sceptics, pointing to trillions of dollars in capital expenditure (capex), a buildout based on speculation, exorbitant compute costs, and an unclear path to profitability.

Aswath Damodaran, NYU Stern professor and widely respected value investor, believes this debate has largely gone off the rails, noting in a recent post, “The debate about AI, in my view, has gone off the track with advocates and sceptics often talking past each other”. Optimists cherry-pick usage metrics, while pessimists focus on heavy spending, with both sides ignoring the rigorous business analysis that needs to take place in the middle. continue…

by Roger Montgomery Posted in Economics, Manufacturing, Market commentary, Market Valuation, Technology & Telecommunications.

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While the debate continues over whether the artificial intelligence (AI) thematic is a bubble, the S&P 500 and the Nasdaq continue to climb a wall of worry. You’d think this would cause at least some of the AI sceptics to throw in the towel, but if anything, it has reinforced their resolve and reinforced their scepticism.

One of the most vocal is English author and tech columnist Ed Zitron.

In a recent interview with Adam Taggart, Zitron dismantled the core promises of the AI boom, suggesting current Large Language Models (LLMs) are an unsustainable, highly subsidised circular economy that fails to solve basic business problems. He also highlights immediate balance sheet pressures, and extreme market concentration. continue…

by Roger Montgomery Posted in Manufacturing, Market commentary, Technology & Telecommunications.

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It’s the question on every investor’s mind: are the hyperscalers spending too much on their infrastructure buildout such that they won’t generate a satisfactory return on capital?

Investors are furiously debating whether the Hyperscalers are overspending.

Recently, ‘Lloyd’ commented on a Livewire blog post about the subject, stating the following: continue…

by Roger Montgomery Posted in Market commentary, Technology & Telecommunications.

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How much do the artificial intelligence (AI) hyperscalers’ businesses need to make from selling their AI tools in order to generate a decent return?

The debate surrounding the Return on Invested Capital (ROIC) for big tech’s massive AI infrastructure expansion revolves around a core question: How much end-user revenue is required to cover hardware depreciation, energy costs, and capital costs?

With hyperscaler capital expenditure (capex) on track to surpass US$600 billion- $800 billion annually, several prominent analysts, venture capital firms, and investment banks have published frameworks and scenarios to quantify the revenue needed for a reasonable return.

Here are a handful. You can decide whether the targets are likely to be met. continue…

by Roger Montgomery Posted in Economics, Investing Education, Manufacturing, Market commentary, Market Valuation, Technology & Telecommunications.

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The S&P 500 has once again notched fresh record highs, surging more than 13 per cent year-to-date (YTD) and comfortably outpacing its historical average annual return. Driving the rally is a combination of robust earnings, apparently stabilising geopolitical friction, and the relentless build-out of artificial intelligence (AI) infrastructure. continue…

by Roger Montgomery Posted in Economics, Editor's Pick, Insightful Insights, Market commentary, Market Valuation, Technology & Telecommunications.

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I joined Juliette Saly on Ausbiz to discuss the next phase of the artificial intelligence (AI) investment cycle and the growing divergence between the companies building AI infrastructure and the hyperscalers funding it. We explored the risks posed by mounting AI capital expenditure (capex), weakening cash flows, the emergence of lower-cost Chinese AI models and what could happen if hyperscalers begin slowing investment. We also discussed why investors may benefit from looking beyond momentum-driven technology stocks towards high-quality, value-oriented businesses and other defensive assets.

Watch the full episode on Ausbiz here: Who really wins from the AI boom? continue…

by Roger Montgomery Posted in Economics, Global markets, Investing Education, Manufacturing, Market commentary, Market Valuation, Technology & Telecommunications, TV Appearances.

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• POSTED IN Economics, Global markets, Investing Education, Manufacturing, Market commentary, Market Valuation, Technology & Telecommunications, TV Appearances

On the surface, markets appear remarkably resilient, so if you’ve felt a sense of calm looking at your portfolio performance lately, you aren’t alone.

But look beneath the surface and the structural fragility you’ll see in valuations, government debt, and global trade makes holding a narrow, concentrated equity portfolio (including any portfolio largely invested in index ETFs) one of the more dangerous bets an investor can make right now. continue…

by Roger Montgomery Posted in Economics, Editor's Pick, Global markets, Insightful Insights, Intrinsic Value, Investing Education, Market commentary, Market Valuation, Popular, Technology & Telecommunications.

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How to respond

Across my articles and media commentaries, I have emphasised that preparing for an artificial intelligence (AI) re-pricing is not about timing a top or shorting tech, but rather about protecting capital through discipline, factor balance, and liquidity.

There are five primary strategies to insulate an investment portfolio from an AI re-rating:

1. Diversify away from equity index heavyweights

Broad, passive equity indices (such as the S&P 500 or Nasdaq) are historically concentrated. Passive flows into index funds mean a significant portion of an investor’s exposure is tied to six or seven AI-driven mega-caps.

Rebalance away from broad index funds that leave up to 60 per cent of equity risk tied to the AI trade. Investors might also consider locking in recent gains and diversifying equity exposure across unsung, non-AI themes. continue…

by Roger Montgomery Posted in Aura Group, Economics, Insightful Insights, Investing Education, Manufacturing, Market commentary, Market Valuation, Technology & Telecommunications.

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Last week, Google reported its first ever quarter of negative cash flow, surprising analysts who thought Q1 2027 would be when pressure on cash flows could seriously emerge, and causing the share price to plunge more than seven per cent.

With the clear exception of Tesla, most of the Mag 7 once deserved high earnings multiples because they were asset-light businesses with competitive advantages that didn’t require money to be defended. The artificial intelligence (AI) race has quickly eroded those moats and their characterisation as asset-light, because, over the last two years, they have had to spend hundreds of billions building data centres to remain competitive. continue…

by Roger Montgomery Posted in Economics, Insightful Insights, Manufacturing, Market commentary, Market Valuation, Technology & Telecommunications.

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