Creative Planning Analysis of the August U.S. Stock Market: Value Stocks Rebound, AI Capital Expenditure Surges, and Bond Market Divergence

Compiled & Organized by Shenchao TechFlow

• Moderator: Charlie Bilello (Chief Market Strategist at Creative Planning)
• Guest: Jamie Battmer, Co-Chief Investment Officer of Creative Planning
• Launch date: 2026-08-01
• This period's key topics: Sustainability of asset rotation, semiconductor sector and leveraged liquidations, IPO surge, inflation and bond market divergence, fiscal deficits, AI capital expenditure cycle, employment and business formation data.
• Disclosure: Charlie Bilello and Jamie Battmer are both employees of Creative Planning, one of the largest independent registered investment advisers (RIAs) in the United States, with officially disclosed assets under management/advisory of approximately $370B+ (as of June 2025). This episode focuses on broad markets, sectors, and macro frameworks and does not recommend individual securities; however, the program serves a brand acquisition purpose for Creative Planning. A standard disclaimer is provided at the beginning of the video: the content does not constitute personalized investment advice.

Shenchao Overview: History doesn’t repeat itself, but it often rhymes. This phrase permeates every topic in this episode: value stocks, small-cap stocks, and emerging markets have collectively rebounded after being shunned for 15 years; semiconductors surged 237% over 14 months, then retreated 20% in a single month; leveraged funds lost half their value in one month and were forced to sell positions to Citadel; SpaceX’s market cap soared to $3 trillion upon listing, only to quickly fall below its offering price; IPO fundraising since 2026 has already surpassed the peak of the 2021 bubble. Meanwhile, the four major cloud providers increased their capital expenditures by 87% year-over-year in Q1; Google recorded negative free cash flow for the first time in its history, while Meta’s free cash flow shrank by 91% year-over-year—light-asset tech giants are rapidly transforming into heavy-asset companies. The most jarring signals come from the bond market: core PCE has remained above 2% for 64 consecutive months, and the 30-year U.S. Treasury yield hit a 19-year high of 5.2%, marking the first time in history that long-term rates rose during a rate-cutting cycle. The Chief Market Strategist and Co-Chief Investment Officer of Creative Planning, one of America’s largest independent investment advisors, wove these threads together into a comprehensive map of the August market over 44 minutes.

• This year, asset rotation has been volatile: value stocks rose approximately 20%, small-cap stocks 19%, emerging markets 15%, and international stocks 13%; U.S. large-cap stocks gained 9%, but growth stocks edged lower, with the Magnificent 7 declining 3%.
• This is a mean reversion following 15 years of growth and tech stocks significantly outperforming, but both the host and guests agreed that this does not justify chasing value stocks or rebalancing portfolios.
• The semiconductor sector experienced what Charlie saw as a "speculative frenzy" by the end of June, rising 237% over 14 months—exceeding the rally before the internet bubble peak; in July, the semiconductor index dropped 20%, and the DRAM ETF fell 30%.
• South Korean retail investors leveraged bets on SK Hynix and Samsung faced margin calls; U.S. hedge fund Situational Awareness, due to extreme leverage on semiconductor stocks, plunged 67% in July and was forced to sell its positions to Citadel.
• After its IPO, SpaceX's market capitalization once exceeded $3 trillion, surpassing Google and Amazon, with a price-to-sales ratio over 150x; it has since declined more than 50% from its peak and fallen below its offering price.
• Since 2026, U.S. IPO fundraising has reached approximately $144 billion, surpassing the 2021 peak; massive IPOs such as OpenAI and Anthropic could further increase market supply.
• Core PCE has been above 2% for 64 consecutive months; the 30-year U.S. Treasury yield has risen to 5.2%, the highest since July 2007 and the first time it has increased during a Fed easing cycle.
• Over the past six years, U.S. inflation has averaged approximately 4%, twice the target; markets are now pricing in a 25-basis-point rate hike in September.
• Since July 1, U.S. Treasury debt has increased by over $400 billion, bringing the total close to $40 trillion; neither the claims of "growing out of debt" nor "using tariff revenues to pay down debt" have materialized.
• The four major hyperscalers (Amazon, Google, Microsoft, Meta) combined capital expenditures amounted to $165 billion in the first quarter, up 87% year-over-year and 393% higher than three years ago.
• Google reported negative free cash flow for the first time; Meta's free cash flow plummeted from $14 billion to $784 million, a 91% year-over-year decline.
• Initial jobless claims fell to the lowest level since January 2024; the number of new businesses in the information technology sector reached a record high, with the threshold for sole proprietorships significantly lowered.

• These value-oriented assets have finally begun to outperform after a long period of underperformance, but don’t rush to chase them. Just as investors frantically bought value stocks after the 2000 tech crash, or flooded into BRICS after a decade of doubling returns, these are often the wrong timing decisions.
• The four most expensive words in the history of financial innovation: This time is different.
• The Federal Reserve says inflation is under control, but the bond market strongly disagrees. The 30-year yield is at 5.2%, a 19-year high.
• It is the federal government that tarnishes the reputation of the drunk sailor. At least the sailor eventually returns to the ship, but the government’s borrowing has no end.
• The end of AI capital spending is either when the money runs out or when someone in a dorm comes up with a more efficient solution. History always plays out this way.
• Excitement and investment returns are not related. Over the long term, it’s often the boring things that win.

Charlie Bilello: Over the past year, diversification has almost become a dirty word. Many have asked, Why should I hold value stocks? Why should I hold small-cap stocks? Take international stocks out of my portfolio. But this year, we’ve seen what I call the “everything reversal.” Value stocks are up about 20%, small caps 19%, emerging markets 15%, midcaps 15%, and international stocks overall up 13%. The U.S. market has still performed well, rising 9%, but growth stocks have actually declined slightly this year, with the Magnificent 7 down 3%. How do you view this rotation? What lessons should investors take away?

Jamie Battmer: It’s finally happened, and I’m actually pleased. For the past roughly 15 years, growth stocks and U.S. tech stocks have been consistently outperforming, and the longer this persisted, the more likely people were to chase them at peak levels. We’ve seen this too many times before—in 2000 and 2010 alike. Back then, emerging markets and international stocks surged, while U.S. large-cap tech stocks fell 33%, and the S&P 500 delivered nearly zero return over the decade. So it’s a good sign to see this rotation occur—it means asset allocation and diversification are beginning to work again, rather than everyone chasing the latest trend.

Charlie Bilello: Many of the questions we’re receiving now are the reverse of what they were a year ago. Back then, people were asking, “Why should I hold these?” Now they’re asking, “Value stocks have risen 20%, while growth stocks have declined—this spread is among the largest on record. Isn’t it too late to switch?” I’ll show you this chart: whether it’s large-cap/small-cap ratios or U.S./international ratios, the same pattern holds. Value has indeed begun to slightly outperform growth, but we’re coming off all-time highs, and this outperformance could very well continue for years to come. Of course, it won’t happen linearly—but given that value has underperformed for 15 consecutive years, a one-year reversal may still be early in terms of timing.

Jamie Battmer: Yes, it could last another three months or another 30 years—no one knows. But as long as you’ve diversified adequately, this shouldn’t impact your strategy. It’s great that long-underperforming value assets are finally starting to outperform, but don’t rush to chase them. After the 2000 tech crash, many investors shifted their entire portfolios into value stocks—wrong timing. Similarly, after emerging markets rose over 100% over a decade, investors flooded into BRICS—again, poor timing. These are all parts of your portfolio; just maintain balance. Long-term, a pullback could start tomorrow, but that’s not a reason to rebalance your asset allocation.

Charlie Bilello: Completely agree. If we could truly predict the future, we should concentrate our bets on the assets that will win. But since we can’t, that’s why we diversify. We don’t know what will happen, so we must spread our bets and hold everything.

Jamie Battmer: My crystal ball is just as useless as the ones on Wall Street that pretend to predict the future. The only difference is that mine needs just a small battery, while theirs charge exorbitant fees.

Charlie Bilello: Next, I want to talk about John Bogle’s “iron law of finance,” which is mean reversion. The most overextended area before July, in my view, was the semiconductor sector. I spent a lot of time studying it—it could only be described as speculative mania. We saw this sector rise 237% over 14 months, even surpassing the rally before the peak of the dot-com bubble. In the weeks leading up to its peak, massive amounts of capital flowed into semiconductor ETFs, a classic case of chasing momentum. One DRAM ETF, which held just three stocks, raised nearly $30 billion in about 30 days, becoming the fastest-growing ETF in history. This almost never ends well. In July, the S&P 500 was essentially flat, down less than 1%, but semiconductors fell 20%, and the DRAM ETF dropped 30%. Did you hear a lot of people talking about semiconductors in June? Were many people asking you whether they should buy?

Jamie Battmer: Absolutely. The societal excitement over AI’s breakthrough advancements has been so intense that everything related to semiconductors has been hyped to the skies. You can debate whether Nvidia is expensive—it’s a large, genuinely profitable company. But many other stocks that rose alongside it are smaller, poorly managed, and merely riding the coattails. It’s reminiscent of the last tech bubble, where adding “.com” to a company’s name could push its stock up 50%. Interestingly, our clients haven’t overextended themselves in this trend; occasionally someone asks about it. But from a portfolio management perspective, it has indeed impacted our mutual fund holdings. We’ve done extensive tax-efficiency optimization and tried to balance clients who hold large positions in Nvidia with massive unrealized gains. When extreme deviations driven by greed and irrational exuberance occur, they create significant challenges. Yet these imbalances eventually self-correct, as recent data has shown—reminding us not to be swept up by irrational enthusiasm or chase trends.

Charlie Bilello: Here’s another lesson about leverage. We’ve seen a surge in leveraged ETFs and related products, along with numerous stories about margin accounts. In South Korea, many retail investors were liquidated after using leverage to bet on SK Hynix and Samsung. In the U.S., there’s a hedge fund called Situational Awareness—a somewhat ironic name, given their apparent lack of it. They made an extreme leveraged bet on semiconductors, growing the fund from hundreds of millions to $45 billion over a few years, becoming one of the fastest-growing hedge funds in the U.S. But then things fell apart. Essentially, they received a margin call and were forced to sell the majority of their stock positions to Ken Griffin’s Citadel.

Jamie Battmer: This is essentially synonymous with “This month, we let you down”—sorry, we’re only human. Humans are inspired by some things and terrified by others. All data overwhelmingly proves that humans cannot beat public markets. Don’t try to beat them; the optimal strategy is to own them. So when we design portfolios, we assume “this month might let you down.” The market may decline, the economy may weaken—these things happen—but the portfolio is built to withstand them and recover. But when people bet heavily on these things, you get headlines like, “Sorry, we got greedy, got excited, and let you down.” Those headlines are as old as newspapers themselves.

Charlie Bilello: This fund dropped 67% in July—clearly not what investors expected, though extreme volatility was anticipated given its prior massive gains. As usual, the issue is investors chasing past performance. They didn’t benefit from the rise, yet they’re bearing the loss. A very true saying in investing is: you have to survive to fight another day. When you use leverage and it encounters extreme volatility, you may lose your chance to fight another day. This is a valuable lesson for all investors.

Charlie Bilello: Third topic—history rhymes again. We all know the saying: history doesn’t repeat itself, but it often rhymes. I’ve been discussing the IPO market. In the first few days after SpaceX’s IPO, I posted numerous warnings noting that its market cap briefly exceeded $3 trillion—higher than Google and Amazon—and its price-to-sales ratio surpassed 150x. Many said, “Charlie, you don’t understand this company; this time is different; it won’t follow a typical IPO trajectory.” But today, the stock has declined more than 50% from its peak, fallen below its offering price, and is now trading below its first-day closing price. In reality, nothing was different—just as you wrote in your letter last quarter.

Jamie Battmer: Thanks, Charlie, for teasing me with this—actually, I stole all these images from you. But seriously, Mark Twain’s saying that history rhymes, along with my favorite book, “This Time Is Different: Eight Centuries of Financial Folly,” both tell us that this isn’t just something that’s happened over the past 15 or 30 years—it’s been going on for a thousand years. It comes down to human nature. It’s perfectly normal for people to get excited about these things, and we have many clients who are excited. If our custodial partners can help them secure a relatively higher allocation, we’ll accommodate their requests—but the data tells us not to. What surprises me most is how Wall Street pretends it can predict the future. Ask a hundred people whether a hot IPO is a good thing and whether they should participate, and most will say yes. But if those same people held up signs saying, “Buy this IPO—it’ll lose you a third of your money on average within a year,” no one would buy it. Yet Wall Street manages to get people in again and again.

Charlie Bilello: They’re excellent at sales—there’s no doubt about that. Demand is clearly there, with the offering being oversubscribed many times over. We’ve seen this movie before: excitement peaks in the first few days of trading, and you’re essentially providing exit liquidity for others. Those who bought at the IPO price are the sellers. Next week, we’ll see the first real test, as SpaceX insiders and early investors haven’t yet been allowed to sell. The first earnings report comes out next week, and two days later, the first wave of people will be free to sell. That’s the real test. If you have a 10x, 20x, or 30x unrealized gain on SpaceX, won’t you sell some? This looks like a high-probability outcome.

Jamie Battmer: We have hundreds of clients who are SpaceX employees or associated with the company. The key point is that you cannot control what the market does—lock-up periods of three months, six months, or any duration are entirely outside your control. What you should focus on instead is proper estate planning, risk mitigation, and risk management. That’s exactly what we do for our SpaceX employee clients. For companies like Anthropic, OpenAI, or anyone holding highly appreciated assets, the future direction of public markets is speculative, but there are many actions you can take that are within your control and unrelated to stock price. That’s where the focus should be—not on guessing how the stock will move tomorrow. Of course, what happens as lock-ups gradually expire is certainly worth paying attention to.

Charlie Bilello: It’s not over—there are still five months left this year. Looking at this chart, U.S. IPO fundraising has already hit a record, reaching approximately $144 billion since 2026, surpassing the peak of the 2021 bubble. Of course, much of this is driven by SpaceX. But as I’ve always said, historically—whether in 2021 or 2000—when such massive waves of supply emerge, as investors seek liquidity exits, it often signals a tougher market ahead. This may not happen this time, but if history rhymes, it wouldn’t be surprising if the listings of companies like OpenAI and Anthropic coincide with a period of market difficulty, given the sudden surge in supply.

Jamie Battmer: Yes, Charlie and I have both been in the industry for over 20 years. The last time people were this excited about individual company names was during the previous tech boom. In 2021, it was more driven by SPACs and financial engineering, but this surge of enthusiasm around names like SpaceX and Anthropic has brought back the same atmosphere we saw with Google, Facebook, and even pets.com—something we haven’t witnessed in 25 years. Those who lived through it know the outcomes usually aren’t pretty, and investors need to remember that now.

Charlie Bilello: Excitement and investment returns are not correlated. Over the long term, it’s often the boring things that win. When Anthropic and OpenAI go public, everyone will be excited, and their stocks may experience a sharp spike—but be cautious about assuming this momentum will continue and chasing the rally. S&P has stuck to its principles and refused to change its rules to include SpaceX, making it the only index provider to do so. Nasdaq changed its rules, and many major ETF issuers followed suit due to overwhelming demand to include SpaceX. So far, sticking to the rules has been correct, as SpaceX has not yet turned a profit and will not be included in the index for at least another year.

Jamie Battmer: In the short term, the results are indeed impressive, but who knows about the long term. Looking at the bigger picture, this comes down to a fact: 87% of companies with annual revenues exceeding $100 million remain private. Therefore, we recommend eligible clients allocate to both public and private markets. Another misconception on Wall Street is that private markets are superior—the holy grail. In reality, they’re not better; they’re just different, offering diversification. This allows you to gain broader exposure across the entire economic system. In the short term, it’s beneficial that SpaceX isn’t in the index, but as more massive IPOs emerge in the future, it will be an interesting debate whether index providers stick to their principles or make compromises.

Charlie Bilello: And if you hold a total market ETF, SpaceX’s weight is only about 20 basis points due to its low float. So your exposure to SpaceX in a total market portfolio is extremely small. But if you allocate 5%, 10%, 15%, or 20% of your portfolio to SpaceX, that’s a massive overweight and a huge bet.

Charlie Bilello: Next, let’s talk about inflation—I call it the “low inflation lie.” The federal government and the Federal Reserve are trying to convince everyone that inflation is under control and not as high as it seems. But the Fed’s preferred inflation measure, core PCE, has been above 2% for 64 consecutive months. Now, the consequences are beginning to show. The 30-year Treasury yield has risen to 5.2%, the highest since July 2007 and a 19-year high. The bond market is responding to many factors, but one thing is clear: inflation is not as contained as the Fed claims, nor is it anywhere near the 2% target. Also worth noting: this is the first time during a Fed rate-cutting cycle that the 30-year yield has not only failed to decline but has actually risen significantly above its level at the start of the cuts. To me, this signals policy missteps and suggests investors are growing hesitant about holding long-term U.S. Treasuries.

Jamie Battmer: Hopefully, because you really shouldn’t hold more bonds than necessary to meet your short- and medium-term cash flow needs. The risk is that someone might say, “5% is good enough—I can live off that.” But overwhelming data shows that over the long term, bond returns are roughly half those of the stock market. And if interest rates surge like they did in 2022, these so-called safe assets could drop by 20%. A common misconception is that bonds underperform over time, but they don’t always serve as a safe haven during storms—if the storm itself is rising interest rates. And regarding the chart you just showed, inflation is the ultimate hidden tax. Many of the numbers we’ve heard are nonsense—for example, claims that healthcare costs have declined over the past decade; every one of the 100 people knows that’s false. Take my family: we have three kids, come from a Midwestern farm background, and eat a lot of bacon. Bacon prices have skyrocketed—I even still have a pack sitting in my fridge. I told my family to try a cheaper brand, but the kids refused to eat it. Maybe they’re just picky eaters—or maybe it shows that even ordinary people are acutely aware of rising prices.

Charlie Bilello: Completely agree. The real issue is the cumulative increase, which has always bothered me. When you listen to the Fed, they always only talk about what happened over the past 12 months. But even looking at just that number, inflation has been rising, not falling. New Fed Chair Kevin Warsh took a very hard line this week. Here’s a quote from this week’s press conference: “Households and businesses have endured dissatisfaction with persistently high inflation for 63, 64 months. We are here, we will deliver, and we are laser-focused on doing so.” Similar tough language to his first press conference in June. But so far, there has been no action—the Fed has not raised rates and is still engaging in some form of quantitative easing, with its balance sheet still expanding. Over the past six years, U.S. inflation has averaged about 4% annually—twice the target. In my view, the Fed must act. If you have a 2% target and want to regain credibility as an inflation fighter, you need to raise rates. The market is now pricing in a 25-basis-point rate hike in September, and I believe this is a high-probability outcome. What do you think? Is the Fed behind the curve?

Jamie Battmer: The only data-driven idea is that Wall Street’s accuracy in predicting interest rate movements is just as high—or low—as any other forecast. A year ago, they predicted nine rate cuts; none happened. Interestingly, there’s a misconception about the Fed chair—that they’re all-powerful, the alpha gorilla of the group—when in reality, they’re just one voting member. Like a president, they receive far too much credit and blame, but they’re merely one human voice pretending to know the future. Alan Greenspan served as Fed chair for a long time and even wrote a book called “Maestro,” claiming he was orchestrating everything. Yet, shortly after, the U.S. experienced the most severe economic downturn since the Great Depression, with many policies enacted during his tenure. Conversely, Paul Volcker was blamed in the 1970s and early 1980s for causing a recession and helping Carter lose the 1980 election to Reagan, because the Fed aggressively crushed inflation. So yes, prices have remained stubbornly high, and action seems necessary—but it’s a balancing act. No one knows what tomorrow will bring. Crushing inflation hurts ordinary workers, but higher interest rates also hurt ordinary workers, small businesses, and regular enterprises—small businesses suffer more than large corporations that can negotiate lower rates. It’s a balance, and future data will tell us the answer. But the fact remains: prices have just kept rising, rising, rising—never falling—and this has gone on too long. It’s a severe hangover from COVID-era policies.

Charlie Bilello: There are indeed many factors—I often talk about the Fed, but clearly it’s not just them. The federal government and fiscal conditions are also significant, but for some reason, the Fed now says, “We’re not talking about that; it’s not our responsibility.” That doesn’t make sense. They must talk about it, and they should talk about it, because it’s a crucial part of the inflation picture. But the Fed also bears responsibility: their prolonged maintenance of ultra-low interest rates, massive monetary easing, and their actions in MBS during 2020 and 2021 were absolutely reckless measures that certainly fueled inflation and continue to stoke it today. So I come back to this: if you have a 2% target, you must stick to it. We haven’t met it for over five years—you should raise rates in response. That doesn’t mean you alone can solve inflation; no, but it’s your job, and you should do something. I think we’ll see a rate hike in September; we’ll invite you back then to discuss it.

Charlie Bilello: Next topic, “slandering the drunk sailor.” The term “sailor” dates back to around the 17th century, when sailors would spend all their earnings from voyages in bars and similar establishments until they had nothing left. I often say the federal government spends like a drunk sailor—but that’s actually slandering the drunk sailor. We don’t just spend our $7 trillion budget; we borrow far beyond it. Since July 1, the national debt has increased by over $400 billion—a staggering pace. We are rapidly approaching a $40 trillion national debt. Inflation isn’t just caused by the Federal Reserve; the massive, uninterrupted borrowing and deficit spending since COVID is the elephant in the room, yet few are seriously discussing it.

Jamie Battmer: Yes, it actually started even earlier, after 2008, and has only gotten worse. If any of us lived this way, we’d be thrown into debtor’s prison, evicted from our homes and apartments—it’s simply not feasible.

Charlie Bilello: Don't try this at home.

Jamie Battmer: Yes. Take drunk sailors— at least they eventually return to the ship. Even if it’s the Titanic, they leave, maybe even sink into an iceberg, but they leave. Government debt, however, has no endpoint. No matter which party is in power, it’s always stimulus, stimulus, more stimulus. It’s like a drug in the medical field: once it enters the body, the economy says, “More, more, more.” The pace of growth is terrifying. I have three children; just now I was complaining about bacon prices half-jokingly, but the world’s debt, obligations, and the checks we’ve written will ultimately fall to them to cash or pay off. In my view, this is leaving a terrible burden for future generations.

Charlie Bilello: I’ve always said they’ll eventually pay for it somehow—not necessarily through direct repayment, but more likely through inflation, reduced future Social Security benefits, or other forms. So we must take action. Moreover, the claim that tariff revenue will balance the budget and pay down debt—Scott Bessent previously said this was possible when debt stood at $37.2 trillion; now it’s $39.8 trillion, and it clearly hasn’t materialized. At the start of Trump’s second term in early 2025, many in government argued that economic growth alone could eliminate the debt, discussing real GDP growth rates of 5%, 6%, or even 7%. That sounds great on paper, but reality is far more difficult. Growth was 2.8% in 2024, 2.1% in 2025, 2.1% in the first quarter of this year, and the latest GDP figure is only 1.5%. Therefore, the idea of growing out of debt is only viable if you achieve post-WWII levels of growth; if growth remains at 1% to 2%, the only solution is spending cuts—something no one wants to do until a true crisis forces it. Discipline is essential.

Jamie Battmer: It’s like someone telling you to eat healthier and exercise more—it’s not a big deal until you have a major heart attack, and then it becomes the biggest deal. Will growth get us out of debt? Maybe AI can do something. Maybe. But historical data says no. Will tariffs be the answer? Maybe. But historical data also says no. I just mentioned the new Fed, Greenspan, Volcker, and now Ben Bernanke—he took these massive debt policies into overdrive during his tenure as Fed chair. He was renowned for understanding the causes of the Great Depression, calling it the holy grail of macroeconomics. Yet, large-scale tariffs implemented during economic collapses have consistently shown, across all data, to worsen the problem and drag the global economy into a worldwide depression. So history says no. The future hasn’t been written yet, but adding more barriers to capitalism is far more likely to produce negative than positive outcomes—and the odds of that seem low.

Charlie Bilello: Two more topics. This is a big one—so much depends on the AI infrastructure boom. Will we keep dancing until the music stops? Everyone remembers Chuck Prince’s 2007 comment—he was CEO of Citigroup, saying they’d keep dancing until the music stopped. Back then, the big banks were all dancing, then the music stopped, and the result was the financial crisis. Today, the big tech companies are still dancing. If you look at the Q1 earnings reports from Amazon, Google, Microsoft, and Meta—the four hyperscalers—Oracle hasn’t reported yet—all of them exceeded their capital expenditure guidance. Together, they spent $165 billion in Q1, an astonishing figure, up 87% year-over-year and 393% higher than three years ago. I’ve been asking: Are we at least nearing the peak of capital expenditure growth? Are we nearing the moment when the music will stop? I suspect that when the music does stop, it’ll be because of this chart. Let’s talk about free cash flow. Last week I mentioned Google—it’s the first time in the company’s history it’s posted negative free cash flow, due to massive spending on property and equipment related to AI infrastructure. This week, Meta’s stock was hammered as its free cash flow plummeted 91%, now down to just $784 million, compared to $12 billion last quarter and $14 billion the quarter before that. Jamie, these companies were originally light-asset businesses—that was one reason for their valuation premiums—but now they’re rapidly transforming into capital-intensive operations. And eventually, won’t investors say, “Wait a minute—I didn’t sign up for this kind of bleeding”? A few years ago, they were among the world’s strongest free cash flow generators; now some have turned negative. These companies are pouring all their money into semiconductor firms. How long can this continue? Is today’s growth rate sustainable? What will make them pull back on their spending plans?

Jamie Battmer: First, personally, I consider Facebook one of the most evil companies on Earth, so I don’t mind seeing it burn through cash. But more broadly, infrastructure—we’ve actually invested heavily in infrastructure. Like any asset class, you must avoid chasing trends. Yes, there are these hot elements, but there are also companies building roads, bridges, maintaining bridges, recycling centers, and water purification plants. So don’t throw out an entire asset class, nor should you dump everything into a rapidly growing industry. Yes, it may continue to grow, but we seem closer to a peak than to the beginning. Interestingly, either, as this chart suggests, they’ll run out of money; or, as has always happened throughout history, massive amounts of capital and resources flood into something, making it expensive or depleting its funding, until the next revolutionary innovation makes it far more efficient. Perhaps someone in a dorm room has already come up with that brilliant idea that will increase efficiency and reduce demand for this kind of infrastructure. Hopefully it’s Stanford or the University of Montana, not a North Korean government facility. But history has shown this pattern repeatedly: when oil prices surged, it drove more efficient extraction technologies. Using history as a guide, the outcome may be that they run out of money, gradually fade away, or AI truly delivers groundbreaking advances for many years to come. The wow factor from technology might last our lifetimes, but there will be fluctuations—and right now, with so much capital flooding into this space, these are historically classic signs of irrational exuberance and red flags.

Charlie Bilello: Yes, these companies were originally asset-light, which was one reason for their high valuations, but they are now rapidly transitioning into capital-intensive businesses—and historically, capital-intensive businesses have delivered poor returns to shareholders. I’ll also quickly note that this isn’t even the latest financing arrangement: Nvidia has announced $250 billion in financing for OpenAI’s data centers. We’re seeing more and more of these circular transactions—companies running out of cash, resorting to issuing debt or equity, even Google has issued equity, which surprised me. They can no longer finance themselves through free cash flow. OpenAI also doesn’t seem to have enough money to do what it wants to do, and now it’s tied to Nvidia, which is essentially guaranteeing financing for this project and using that funding to purchase chips. I find this circular structure dangerous; in hindsight, Nvidia’s need to resort to such measures at this time will likely be seen as a warning sign.

Charlie Bilello: Let’s end on a positive note—there are two very positive trends. First, at the end of last year, we often discussed a weakening labor market, rising unemployment, and even job losses outside of a recession—I called it the most confusing labor market in history. But over the past six months, we’ve seen a reversal: employment is growing again, and initial jobless claims have dropped dramatically. While fears persist that AI will cause widespread job losses, and that may still happen in the future, right now people aren’t filing for unemployment en masse. Initial jobless claims have fallen to their lowest level since January 2024. On the other hand, regarding capital expenditures—a potential concern—the number of new companies being formed in the information technology sector is so high that the chart barely fits. There’s an explosion of new startups; never before has it been this easy to launch a tech company, requiring fewer employees, and we’re seeing a surge in one-person businesses. Regardless of market movements or returns, this will drive more innovation and competition. As you said, innovation is ultimately what will resolve the high capital requirements and elevated memory prices. What are your thoughts on the labor market and this surge in new businesses?

Jamie Battmer: I think this is great. It shows that someone had a good idea. You’re right—the barrier to entry has dropped dramatically. It’s wonderful that people who are stuck, tired of the routine, and want to try something new can now break through that barrier. I’m also glad fewer people will have to go home and tell their families they’ve lost their jobs. AI may and will take away some jobs, but history shows that every major technological leap has created more jobs, greater well-being, and higher productivity. If this time is different, it would be the exception to the rule. Of course, what works and what doesn’t will change—but what works and what doesn’t has always changed. I think this is fantastic: people with ideas, people who want to make a change, can now truly go all in and chase the American Dream. Many say the American Dream is gone, but the data tells a completely different story.

Charlie Bilello: Great. Jamie, thanks so much for an excellent show today.

Jamie Battmer: Thank you, Charlie.