the $meta selloff due to equity dilution is really annoyingbut at the same time...can we really blame them?meta and goog…

the $meta selloff due to equity dilution is really annoying

but at the same time...can we really blame them?

meta and google both did equity raises this year for about $100B each. they are the greatest businesses in the world.

google is flat ytd and meta is now red after peaking at $780.

they have both been opportunity costs, but not because they are small spec plays that you took a chance on...these are some of the greatest businesses in the world.

the problem is, they need capital. they dont have fcf anymore. they levered up their balance sheets. the only thing left is equity to offer. if we want them to be the giant compounders that the global economy depends on, they need capital for their AI buildout and that capital will come from dilution which unfortunately keeps their stocks stuck.

ever since google did their raise, they have gone nowhere but flat to down, even berkshire is bagholding 10b of $googl they bought at 350.

the $meta $25b offering today at $625 was 5x oversubscribed, just like google's was, which means smart money obviously knows these are amazing discounts/valuations to pay...but the street isnt going to easily let these names run with the threat of more shares entering into the market.

the fact that $nvda and $amd had to invest in $meta today also shows how much the chipmakers realize that these companies need cash and they will have to participate in financing these companies to make sure their chip sales are disrupted.

this all doesn't work if the capex isn't going to lead to an roi. if it will, then i expect them to continue diluting and that means we might have to deal with the hyperscalers potentially being stuck if the street can't get over their constant dillution.

now, $amzn and $msft haven't tapped equity markets yet...which means if they do, we know the playbook for how the street may react. if they don't, then they might have a better chance of avoiding that stagnation, but ultimately if you believe in the AI buildout, these companies need money and that money will have to come from shareholders.

we just get the opportunity, even if prolonged, to buy them at what are historically the lowest multiples they've ever had relative to their growth with the eventual ROI from all this capex coming over the next few years.

Source: amit