Dear Reader,
This is Dylan Jovine with Behind the Markets.
Happy Thursday. Today is Thursday, June 25th.
Today I want to talk about tech stocks — and the game behind the game that most people aren't watching.
Why Tech Is Selling Off
The great rally in tech has left these stocks open to sharp reversals.
I've seen this play out in sector after sector throughout my career.
Tech. Biotech. Crypto. Marijuana. Real estate. Banking.
Stretched valuations, euphoric spending, and then the market wakes up and asks: wait, what's the actual return on all of this?
That's the question being asked right now.
The worry is not just higher rates — though that's real.
It's that the AI buildout may produce investments that take 20 years to generate a return instead of three or five.
Overhyped spending.
Bad investments dressed up in exciting language.
This is the hallmark of every tech bull market, from top to bottom, forever.
How I Think About What to Own
Let me share something I've been thinking about.
There are stocks in my core portfolio that I'm essentially married to.
The reason is simple.
They earn high returns on capital — for every $1,000 they invest in their business, they get $200 or $300 back.
That's 20% to 30% returns on invested capital.
The average American company earns 12%.
The second thing I look for is a durable competitive advantage.
I want to make sure those high returns last — ideally for 20 years, like Gillette or Coca-Cola, but at minimum five to ten.
And third, I buy them at good prices.
Overpaying for even a great business is a mistake.
When those core positions come down — and they all do — I bite a little more.
Everything comes into your strike zone eventually if you're patient enough.
Full stop.
Everything else beyond my core positions?
Those are trades. We're dating, not married.
The Real Battle Happening Right Now
Here is the game behind the game I want you to keep your eye on.
There is a war happening between two camps in AI, and the outcome will determine who captures the enormous profits from this revolution.
On one side: the LLM companies — OpenAI, Claude, and others.
On the other side: the eyeball companies — Microsoft, Apple, Google — the ones who control the interface between AI and the user.
Microsoft is now opening up their platform to let customers choose whichever AI model they want, on price.
Claude, OpenAI, or anyone else.
Think about what that does.
If Microsoft wins this battle — if the eyeball companies commoditize the LLMs — then the AI models become like utilities.
Their pricing power collapses.
Their margins go down.
They become interchangeable.
Like electricity — essential but not particularly profitable for the provider.
If the LLM companies win — if Claude or OpenAI manage to own the relationship with the end user — then they eat the entire software industry's lunch.
The pricing power goes to them.
The high returns on capital go to them.
The Question Nobody Can Answer Yet
Here is what makes this so fascinating and so uncertain.
If Microsoft, Apple, and Google win this battle — if the eyeball companies commoditize the models — then you have to ask yourself: did OpenAI and Anthropic really need to commit $500 billion to data center buildouts?
Are those investments still justified if their margins get crushed?
That is the business battle that serious investors and analysts are wrestling with right now.
It is too early to say how this plays out.
But it is the most important strategic question in the market right now.
Keep your eye on it.
Anyway, that's all I have for you today.
Have a wonderful Thursday.
I'll see you tomorrow.
“The Buck Stops Here,”
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Written by Dylan Jovine