Meta Looks Mispriced
Meta trades at an 18 times earnings multiple while the S&P sits around 20 or 21. There is no scenario where a company with Meta's opportunity, distribution, and the eyeballs it already owns deserves to trade below the broad market multiple.
Big Tech Tapping the Markets Is Fine
"Bottleneck bros" is a recent Wall Street term now in circulation. On the question of whether it should worry anyone that Amazon and similar names are tapping the debt market, with some tapping equity, to raise extra cash: no, this is healthy.
Google opened the floodgates a couple of weeks ago as the first of the Mag 7 to go this route, and the market did not punish the stock. Expect many more of these massive companies to leverage the financial markets to squeeze out the most cash for building data centers. The math works because they are marking up their capex with a return above 5%. Idle cash on the sidelines would earn only 4 to 5%, so deploying it into data centers that meet strong AI-product demand is the better use. The more data centers they build, the more of that demand they capture. As long as that demand holds, borrowing to fund the buildout carries no issue.
Where the Real Risk Sits
The concern is the weaker players. CoreWeave has to take on 8% interest loans to fund its data center buildout, and that is worrisome. Amazon, Google, and Microsoft hold enough cash to self-fund but choose not to, because loading all the risk onto your own balance sheet is poor financial engineering. CoreWeave lacks that luxury and has to absorb the 8% rate.
One bad agent is tolerable. If more weak players pile in and the numbers climb into the hundreds of billions of dollars, the risk could turn systemic. For now the exposure is nowhere near that level.
(Analysis attributed to the chief market strategist at Futurum Equities.)
