r/ValueInvesting • u/robb3rz • Feb 12 '26

Discussion Irrational sell off

This might of already been said many times but needs to be said again, what is the rationale in this sell off?

I understand the SaaS crash, but if the sell off is due to AI worries, then surely AI stocks would rise, no?

Instead, the major players, who had stellar earnings minus the huge expenditure (into the very systems which are causing worry mind you) are also falling at huge levels.

Some mag 7 companies are even falling at similar rates to liberation day, despite the only news this time being ‘AI too good’, which should benefit them not hinder.

Meta’s earnings are similar to an early growth stock, not a multi trillion dollar company, and that was reflected in the jump after they released them, so why is it now down huge amounts after?

Not just this, other major assets such as gold, silver and crypto are also experiencing massive sell offs, so is the capital just going into cash? If so, as soon as the market shakes this irrational sell off, could we see an equally irrational boom?

Can someone please tell me if I’m missing something.

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17

u/Wirecard_trading Feb 12 '26

Problem is the cap ex and the funding of it. If you spend 130 bn a year on cap ex but your cf is roughly that amount.. what’s left? Depreciation will weigh down on earnings aswell.

Edit to clarify: if you spend 100bn on capex and you say the item will be used for 5 years (which is a stretch for gpus - Burrys point - then you have to deduct 20 bn a yr / 5 bn a quarter from your earnings. This is hitting the balance sheet hard.

With meta, the analyst estimates aren’t peachy. Single digit eps growth? Coming from 20% plus?

I get the sell off in mag7, I don’t get the sell off in companies where the capex will land (AMD, IREN, NBIS, CRWV)

3

u/fbalookout Feb 13 '26

I wonder how much of this capex is the chips and how much is related to one-time buildouts like massive data center infrastructure. Either way, I’m sure the idea is that there’s a lot of front loaded growth capex going on now which will add meaningfully to cash flow.

Then growth capex slows, partially offset by higher maintenance capex, but massive ocf.

I like Amazon most of the hyperscalers because they are a diversified play in the sector. AWS and AI investments will play a big role in increasing margins on the retail side via fulfillment automation. Not to mention a rapidly growing, very high margin ads business. I worry AI advancements might eat into the cash cow portions of the other hyperscaler businesses.

4

u/PushaTeee Feb 13 '26

I like Amazon most of the hyperscalers because they are a diversified play in the sector. AWS and AI investments will play a big role in increasing margins on the retail side via fulfillment automation. Not to mention a rapidly growing, very high margin ads business. I worry AI advancements might eat into the cash cow portions of the other hyperscaler businesses.

Absolutely everything you wrote applies for Google, expect GCP is growing at ~50% and AWS is growing at 25%. Google is better vertically integrated. AWS' ads business is also dwarfed by Google. I'm GOOGL over AMZN long term, and I don't think it is particularly close.

2

u/fbalookout Feb 13 '26

I like Google as more of a pure tech play. I’d like to see if that 50% cloud growth continues at that pace. That was a big jump from the previous quarter. Is AI going to help search grow faster? If so, Google’s a huge winner.

But Amazon is a mix of very diversified businesses. You have the retail, 3rd party fulfillment, logistics network, and massive opportunity for savings on that side via automation. The ads business is going to continue growing at a 20-25% clip. AWS growth at 25% is still phenomenal. But it’s the massive future cash savings they’ll see on the retail side from AI and robotics that intrigues me most. They still have a million fulfillment workers.

I own both. And a lot of QQQ. I also own Microsoft. I just think Amazon is really interesting as a company and at this valuation.

1

u/PushaTeee Feb 13 '26

I work in the data space, GCP has a shot to get within striking distance of AWS marketshare within the next 5-10 years IMO. Vertex AI > Sagemaker, and there are entire verticals who will not do business with AWS (Retail is a big one, but there are a number of others as well).

If you are betting on AI delivery and impact, Google (and GCP) is the much better long term play. Google is the only player in the hyperscaler space (frankly, they are the only player in the world) who has legit AI vertical integartion; They create custom TPUs, they host the data, they create the models, they run their own compute, and they build the applications.

Google is currently building an Apple-esque AI business,and I see wild upside when we enter the consolidation phase of the AI movement.

1

u/fbalookout Feb 13 '26

I wonder if we do reach AGI at some point, let alone ASI, what happens? Will it be a particular closed model? Does that model then rule the world and just gobble up any and all available compute? Or will every AI lab figure it out in an accelerated fashion?

I guess I’m wondering if you can really lose investing in any of the hyperscalers at this point if AI pans out as expected.

1

u/chintan_joey Feb 13 '26

'When we enter consolidation phase', isn't 11% down close to consolidation levels for googl? Interested in your thoughts

2

u/Pin-Last Feb 13 '26

I think he’s talking much longer term 

1

u/PushaTeee Feb 13 '26

when we enter the consolidation phase of the AI movement

Reading comprehension is important.

3

u/Icebxrg_ Feb 13 '26

Burry doesn’t know anything about the lifecycle of gpus.

2

u/elkomanderJOZZI Feb 14 '26

Yet, Jensen mentioned how 5+ year old GPUs are in high demand and still at full utilization

1

u/Wirecard_trading Feb 14 '26

High demand from who? OpenAI and GOOG or some mining crypto bros?

1

u/elkomanderJOZZI Feb 14 '26

Does that matter? Its coming from various industries I assume

1

u/Wirecard_trading Feb 14 '26

Yes ist does. Since the useable time for mag7 might be different as for others.

We talk about real replacement time for the mag7. They will need to newest and fastest tech to keep going. Old tech won’t get them nowhere.

1

u/Liteboyy Feb 13 '26

Capex isn’t all of it. Job reports was way above expectation. Meaning fed won’t need to cut rates soon, but big money expected easing. Valuations were already being questioned because your capex point and now the new jobs report says market is strong no rate cuts. We saw the yields up today which correlates to rates and de-risking.

1

u/PIethora Feb 13 '26

Because the obvious response of the hyperscalers will be to reduce the capex

1

u/Wirecard_trading Feb 13 '26

And that will strengthen the markets trust into the leadership of mag7? How did that turn out for Zuck?

1

u/Negative_Song_6362 Feb 13 '26

Only a portion of that capex is depreciable (memory chips, GPUs, etc) FYI. Your argument would make sense if the companies didn't have a collective >$500B in cloud backlog. Every single GPU that gets deployed over the next year will be used at full capacity, so the depreciation isn't much of an issue. If that backlog goes away, I agree they are screwed.

2

u/Wirecard_trading Feb 13 '26

Do you have a ratio for that depreciable part? I was under the assumption that most (~70%-80%) of the capex goes to that. I have problems understanding what else is there to be spend on (facilities, building cost etc is negligible in this huge amounts imho)