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AI boom comparison to dot-com bubble is overblown, says Barclays' Krishna
Youtubeยท 2025-09-30 18:07
Core Insights - The AI trade is considered to be on solid footing, with hyperscalers generating sufficient cash flow to invest in AI while also returning cash to shareholders [1][2] - Major tech companies like Microsoft, Amazon, and Meta are already monetizing their AI investments through their core businesses, which include e-commerce, cloud services, and advertising [2][3] - The productivity improvements in their software stacks are estimated to be around 30-40% [3] Financial Performance - Big tech companies have seen net margins improve by nearly 200 basis points in the last quarter [4] - The current market is characterized as corporate capex heavy, with tech and financial sectors performing well, while other sectors face pressure on operating leverage and margins [5][6] - The capital spending cycle is expected to remain intact for the next 12 to 18 months, with nearly 50% of operating cash flow being used for buybacks [6] Market Dynamics - A potential decline in data center capex by 20% over the next two years could have a more significant impact on valuations than on earnings for the S&P 500 [7] - The AI narrative has expanded beyond hyperscalers, affecting sectors such as energy, industrials, and utilities, with an estimated earnings impact of 3-4% on around 80 stocks [9] - The risk to valuations in the event of a capex pullback is estimated to be between 10-13% [9][10] - A slowdown could lead to a potential 15% or more hit to equity returns due to the combined effects on earnings and valuations [10]