Dear Reader,
I’m sitting here with the amazing Victoria, who’s visiting us from our Ohio office.
What a gift it would be to be 28 years old again, with the whole world ahead of you.
Her future is so bright I have to wear shades.
Okay, now on to the AI trade, because it’s changing.
Before and After
Before, anyone with AI attached to their name had money thrown at them.
Now Wall Street is back in control.
Only the best deals are getting funded, and the garbage isn’t getting a second look.
Lenders and investors are getting choosier about where they place their bets.
They’re demanding tougher terms for their money.
That’s very healthy, and it tells us we’re in a new phase of the AI build-out.
Why Now
Start with the amount of paper.
In 2025, AI-linked debt was $394 billion.
This year, through mid-October, it’s $655 billion.
Next year it’s expected to be a trillion dollars of fresh AI-linked debt.
Wall Street is up to its neck in it, and it’s saying enough.
The best deals go to the front of the line.
The worst go to the back.
If you don’t have a business plan, we won’t even look at you.
Nobody doubts that AI is the biggest thing in the world.
The questions are how fast it delivers a return, how fast the data centers get built, and how fast S&P 500 companies turn it into profits.
We know the Mag Seven is turning it into profits.
Their cloud businesses are growing 40% to 50% a year, and in Google’s case about 100%.
They didn’t sell off last week because the cloud disappointed…
Three things are forcing everyone to take a ticket and get in line.
One, data center pushback.
Two, too much paper. The money has to be organized and handed out on merit.
Three, the speed of the AI story itself.
OpenAI and Anthropic have posted amazing growth, but both have slowed.
From a Flood of Debt to a Flood of Equity
We’ve seen the flood of debt.
Now comes the flood of equity.
We saw some of it with SpaceX.
Anthropic is on deck, and OpenAI isn’t far behind.
What the Sorting Looks Like
If CoreWeave, Nebius, and Nscale could still raise debt at super cheap prices while facing this much data center pullback, that wouldn’t be logical.
That would be dumb money.
It would be a no-income mortgage.
We know how that aged in the housing crisis.
Instead, the bond markets are closing to bad deals, and even great names feel it.
Broadcom had to sweeten the terms it offered banks.
Meta will have to sweeten its terms too.
Lambda dialed back its valuation on the equity side.
Nscale wanted to go public, and that door was closed.
And bad results get punished.
Intel is down 30% after a miss, and that was more about the PC business than data centers.
Alphabet, which we talked about yesterday, is down roughly 9% to 12%.
It’s a shoot first, ask questions later market, and I think it’s about time.
Why This Is Good
In aggregate, the market is finally acting the way we act on a regular Tuesday.
Disciplined, smart investing.
That’s a very good sign.
This is how you prevent a crash.
You work these things out in real time.
It’s a sorting process, and it’s healthy for the longevity of the bull market itself.
That’s why you need to invest in the smart companies, with real revenue and reasonable valuations.
The type of company that makes money no matter how the market is doing,
This one is my personal favorite.
Have a wonderful day.
I’ll speak to you tomorrow.
“The Buck Stops Here,”
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Written by Dylan Jovine