The sell-off after the US elections, the cash burn at the hyperscalers and why successful investing is a marathon. A conversation on BISS Explainer at BISS.bg.
In the new episode of BISS Explainer on BISS.bg we talked about the market reaction after the US midterm elections, the record capital spending of the tech giants and how to keep a clear head when emotions rule the market. The full video is below.
A black swan, a little late
Markets are interesting precisely because they can always surprise us. The Democrats’ victory surprised no one. Had we been having this conversation a month ago, I would have said it was already priced in. The surprise came from the strength, speed and timing of Thursday’s sell-off, when the NASDAQ fell by around 6%. That is why I call it a black swan.
Repricing risk is normal, because Democratic policy is different, especially on energy and data centers. In my view, however, the reaction is excessive. Data centers are not going to disappear. Those at an advanced stage of construction will be completed. The trouble will be with projects that are only just starting, and the companies that have counted on revenue from them will have to revise their forecasts.
The other side of the coin: cash flow
The market’s biggest worry over the past few quarters has been the free cash flow burn at the hyperscalers. We have seen negative cash flow at Alphabet and Amazon, and in some quarters at Meta too, while capital spending grows at a colossal pace. Investors are asking when these investments will pay off, and there is still no answer. If slower data center construction forces the hyperscalers to stretch their capital spending over time, that could turn out to be positive for their cash flow. I am curious to see how the market answers this question.
Selectivity instead of the herd
It has been a long time since we saw a move in which the whole tech sector rises together. Beyond the core business, the market is looking more and more at each company’s financial health: its cash flow, its debt and its sensitivity to specific events. Until emotions give way to fundamentals, I do not rule out any scenario, including a recovery.
Google is more than a search engine
The pressure on Google Search is real, because users increasingly search through chatbots. Alphabet, however, is a highly diversified company, with cloud services, YouTube and stakes in OpenAI, Anthropic and SpaceX. I find it hard to imagine Google or Amazon failing to position themselves, whatever happens with AI. And the case of the software companies at the start of the year showed how quickly the market can change its mind by 180 degrees. Back then we decided that AI would destroy them, and six months later their results showed the opposite.
The market will always be there
Successful investing is a long-distance run, not a sprint. Chasing short-term events and trying to predict bottoms and tops is more a matter of luck. It is far more useful to imagine what our lives will look like in three or five years and which companies will benefit from that. AI is making its way into computers, smartphones, cars and smart devices. Whether there will be more data centers or whether they will slow down is a question of the speed of the process, not its direction.
That is why, in a deeper correction, including among Asian memory and semiconductor makers such as Samsung, SK Hynix and TSMC, some companies may turn out to be buying opportunities. When a business enjoys shortages and strong demand, a fall in its share price does not mean the demand has disappeared.
Know the market, but also yourself
Do not tie your professional identity to a single position and its outcome. Every trade should match the psychology you believe in. I am not a trader, and I prefer a horizon of at least one year. We often pay far too much attention to knowing the market and far too little to knowing ourselves.
In the conversation we also touched on Tesla and SpaceX, political polarization in the US and the bond market, where governments and hyperscalers are already competing for the same money. You can hear all of it in the video.
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