equals free-cash-flow.<\/li>\n<\/ul>\nThe growth in capex for the hyperscalers is so large today, it’s historically unprecedented. But that capex doesn’t show up anywhere in the income statement, but is rather capitalized, and run through the cash-flow statement.<\/p>\n
Thus, while EPS growth looks tremendous for investors, the problem is tech valuations could shrink as free-cash-flow gets continually pushed lower as capex grows.<\/p>\n
The goal today is not get too wonky with the Saturday morning blog.<\/p>\n
The cold hard truth about managing money is you have to worry about everything. Will this wild capex growth eventually cause major revisions lower in tech sector valuations ?<\/p>\n
Summary \/ conclusion:<\/strong><\/em>\u00a0 The goal of today’s blog post was to show that the SP 500 Earnings Yield has moved above the critical 5% yield level, therefore, finally the SP 500 could be said to be getting back to a more reasonable valuation. A 5% EY could imply for some a 20x PE for the SP 500 benchmark, which again is more reasonable than January’s and February’s PE valuation levels.<\/p>\nNone of this is a recommendation or advice, but only an opinion. We are starting to get a whiff of fear in the stock and bond markets – not as bad as the 60x VIX in early April ’25 around Liberation Day – but the VIX finished the week of 3\/27\/26 over 30. Readers and clients should gauge their own comfort with portfolio volatility and adjust accordingly. LSEG is the primary source of this blog’s SP 500 EPS and revenue estimates and history.<\/p>\n
Logic would tell us there is still more downside to stocks, with much dependent on crude oil prices. Brent should stay below the $115 – $122 level, and I’d like to see West Texas Intermediate (WTI) remain below $100.<\/p>\n
The Friday before the Iran air strikes started, WTI closed that Friday, 2\/27\/26, at $67.02 per barrel.<\/p>\n
Thanks for reading.<\/p>\n
<\/p>\n
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