Why AI hyperscalers are now the epicenter of a bear case for stocks

Breaking news from the markets: If the facts change, then I have to change. I learned that from reading the legendary British economist John Maynard Keynes, and it has never steered me wrong. I was a huge bull on this market because of the terrific things happening in artificial intelligence.

And because we had a new Federal Reserve chair in Kevin Warsh, who wanted to cut interest rates to support growth, given the frozen housing market and an underclass struggling with higher gas prices, a drop in health care coverage, and the gratuitous cut in food stamps. I made this judgment, as I always do, by going to the source: the top twenty public U. retailers, who know far more than the government does about spending habits.

Economic Details

Those include the auto and the auto parts companies, as well as ancillary home care businesses. The idea that we don't need rate cuts is fanciful. But then we got the monthly employment report on Friday, which showed that job growth unexpectedly surged in May, with nonfarm payrolls jumping a seasonally adjusted 172,000, far above the Dow Jones consensus estimate of 80,000.

Of course, that figure never distinguishes between those who are employed and doing well and those who are employed and trying to hold it together. A job means self-sufficiency in this country, and there's no counterargument to that line of thinking, despite my attempt to make one when I interviewed Kevin Hassett, President Donald Trump's chief economic adviser. But it wasn't worth the effort, even though the nature of the poor working class is obvious to anyone except those who only have wealthy friends and acquaintances.

Knowing people of all levels of the economic spectrum is like knowing the cost of milk and gasoline. It helps you to do your job well. The stronger-than-expected report wiped out the chance of rate hikes, or even a single one, this year, and that had been a major prop to my bull case.

Analyst Views

I could have looked past the macro if not for the dramatic change in the data center buildout, where costs have risen sharply on everything from labor and construction materials to power and site development. We went from thinking there would be a payback in the near future to having no sense of when it would occur. As recently as a month ago, I felt that Amazon's confidence about a return on invested capital was so definitive that there was no reason to worry.

Now I worry that Amazon may need to make an equity offering because the payoff from AI is more elusive than definite. I also thought that we would only have to deal with equity offerings from a few private companies: OpenAI, Anthropic, and SpaceX. But after Alphabet announced plans to raise $80 billion through stock sales to fund its AI efforts, it looks like the biggest tech companies, including Amazon, Microsoft , and Meta , may need to raise huge sums for AI by selling stock.

There is no way this market can handle that much equity and stay at these levels.

Financial markets are tracking the development closely as investors assess the likely impact.