Dear Fellow Investor,
Good morning. Happy Saturday!
I hope you’re getting some rest this weekend. After the week we just had, we all earned it.
But first, let’s talk about Meta.
On Wednesday night, Meta reported its third quarter.
On paper, it was a good quarter.
Meta beat Wall Street’s expectations.
But buried in the numbers was something investors hadn’t seen in more than a decade.
Meta burned cash.
Free cash flow came in at negative $2.12 billion for the quarter.
That’s the first cash outflow from Meta in more than ten years.
And it wasn’t because the business got worse.
It was because Meta is spending so much on AI that the money coming in can’t keep up with the money going out.
On Thursday, the stock fell about 7%.
And it took a lot of the market down with it.
The Nasdaq had its worst day since June.
The S&P 500 had its worst day since July.
The big chip stocks got hit hardest — the semiconductor index fell 6.7% in a single day and is now off more than 26% from its June high.
If you’re like most people, you’re probably wondering whether this is finally the moment the AI boom runs out of road.
Fair question. Let’s dig in.
What Meta Actually Told Us
Three things came out of that report.
First, the cash.
Meta used to be one of the great cash machines in America.
For one quarter, at least, it isn’t anymore.
Second, the spending.
Meta now expects to spend $135 to $145 billion on capital projects this year.
It raised the bottom of that range from $130 billion.
And it said it plans to keep “investing aggressively” next year.
Third — and this is the one I keep coming back to — Meta is creating a brand-new class of stock.
Non-voting shares.
They’ll be handed out to existing shareholders starting in January 2027.
Reuters reported the goal is to help raise capital for AI.
Think about that for a second.
One of the most profitable companies in the world is building a new way to raise money.
That tells you how expensive this race has become.
Where I Agree With the Worriers
I’ve said it many times.
This market is a tennis match between interest rates and earnings.
When a company like Meta starts burning cash to keep up, investors get nervous.
They should.
And look where the money went on Thursday.
Investors sold stocks and bought bonds.
The 10-year Treasury yield fell below 5% for the first time in about a month — its biggest one-day drop since March 2023.
That’s the other player in the tennis match, and for one day it gave investors a little breathing room.
Ed Yardeni called the AI trade a “bubble” on Thursday.
But he also said taking some air out of it is a good thing — and he doesn’t think it’s going to burst.
I think that’s about right.
Some of these companies are priced for perfection.
And perfection rarely shows up on schedule.
The speculative names — the ones with no consistent earnings and a lot of debt — are the ones that get hit hardest when the mood turns.
We tend to avoid those anyway.
I’ve watched this movie too many times.
Bumpy is normal.
Bumpy is not the same as broken.
The Line Everybody Missed
Here’s what I found far more interesting this week.
On Thursday morning, Jensen Huang — the CEO of Nvidia — sat down with CNBC in Berlin.
He said demand for AI computing is “off the charts.”
Then he said this:
“There’s a scarcity of capital. The demand of the capital is much greater than the availability of the capital.”
Read that again.
The man selling the most important chips in the world isn’t saying demand is drying up.
He’s saying the money to meet the demand is.
That’s a very different problem.
A demand problem means nobody wants what you’re selling.
A capital problem means everybody wants it — and the race is on to pay for it.
That’s exactly what Meta is doing with that new class of stock.
It’s finding a way to pay.
Follow the Bottleneck
So here’s how I’m thinking about it.
When money gets tight, the big spenders don’t stop spending.
They get choosier.
They cut the nice-to-haves.
They protect the must-haves.
And the companies that supply the must-haves — the ones a customer simply cannot replace — get paid first.
Nobody in the world is spending on AI more aggressively than Elon Musk.
His supercomputer in Memphis, Colossus, is one of the biggest AI projects on the planet.
Musk isn’t asking whether to keep building.
He’s asking how fast.
And from what I’ve found, the entire $1.75 trillion Colossus depends on one company Wall Street has completely overlooked.
It’s not Nvidia.
It’s not Meta.
It’s a much smaller name that most investors have never heard of.
When capital is scarce, that’s exactly the kind of company I want to own — the one the biggest spender on earth can’t do without.
I’ve put together the full story on who it is and why Elon needs it so badly.
Here’s who it is and why Colossus depends on it:
Have a wonderful weekend.
I’ll see you tomorrow.
“The Buck Stops Here,”
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Written by Dylan Jovine