""One 'yellow flag' though has now been triggered. While FCF generation remains positive on aggregate, ongoing spending to build GenAI's 'railroad tracks' is becoming a key issue. Hyperscalers' 12-month forward FCF has now plummeted below the 'yellow flag' 2022 cycle lows. ... Amazon's $200 billion in capex for 2026 was higher than feared-and means 2026 is likely a negative FCF year for Amazon. FCF turning negative for the hyperscalers on aggregate would signal a major 'red flag,'""
""Increasing capex is forcing companies to spend significantly more of their cash flows, and raise debt, to continue investing for the future. Debt-driven expansion has sent jitters through the market, but signs of AI systemic risks still remain largely absent. Broadly, leverage continues to remain healthy,""
""More 'yellow' and 'red' flags being triggered coinciding with ongoing AI gains would indicate sentiment is driving returns-raising the likelihood of a bubble,""
Hyperscale technology companies are allocating substantial capital expenditures to build GenAI infrastructure, increasing cash outflows and debt issuance. Debt among hyperscalers now exceeds cash on aggregate after large financings such as Alphabet's recent $30 billion-plus raise. Twelve-month forward free cash flow for hyperscalers has fallen below 2022 cycle lows, and Amazon's planned $200 billion capex for 2026 may drive negative FCF for that year. Aggregate negative FCF across hyperscalers would represent a significant red flag. Rising leverage and triggered 'yellow' and 'red' warnings alongside AI gains could reflect sentiment-driven returns and elevate bubble risk. Evercore projects the S&P 500 could reach 7,750 by year-end.
Read at Fortune
Unable to calculate read time
Collection
[
|
...
]