Among the things the over-rational get wrong about capital markets is how continuing to do things for which the maret once rewarded you will eventually get you punished. We saw this in crypto treasury companies, where, for a surprisingly long period of madness, adding $1 of crypto to one's public company's treasury, added more than $1 to the subsequent market capitalization. That ended sometime last year, and has reversed, with crypto treasury companies getting smashed and promoters washing their hands of it all.
We have seen a similar trajectory in AI-related capex, dating back to 2023. Initialy companies were rewarded by markets for promising vast capex increases. The future isn't cheap!
But that reaction to spending is now reversing, as stock price reactions to outsized spending announcements have increasingly shown. This may be belated, but it was inevitable. Tech companies, once valued for their low debt and low capital intensity, are now among the leaders in both, a dubious distinction. And don't get me started about maintenance capital implied by current spending.
Markets have come to similar views, reversing wrt the multiple it gives public companies for AI capex. Check the following graph, from my analysis, to see how the AI capex multiple—like its crypto treasury counterpart of yore—has collapsed, and likely gone negative.