TIP634: Value Investing Fundamentals w/ John Huber
We Study Billionaires - The Investor’s Podcast Network
Transformation of Big Tech Companies: Increasing Capital Expenditures and Impact on Returns
Big tech companies like Facebook, Alphabet, and Microsoft have significantly increased their capital expenditures, indicating a shift towards being more capital intensive. This change is driven by investments in areas like data centers, cloud computing, and artificial intelligence, which require substantial capital and energy. The shift to AI specifically is seen as a major driver of increased capital intensity. Shareholders should consider the impact on returns on capital due to these large investments, as the returns might not be immediate and could take years to reflect in financial statements. This delay in depreciation compared to capital expenditures can potentially inflate current earnings, leading to a need for a careful evaluation of future returns. The magnitude of these investments can impact the margin of safety for investors, with a higher stock valuation requiring a more precise assessment of returns. While the depreciation is expected to eventually catch up with capital expenditures, the key question for shareholders is whether the business's growth and earnings potential will be able to absorb these costs effectively.
