00:00It's Benzinga, bringing Wall Street to Main Street.
00:02Big tech valuations are facing scrutiny as Ross Hendricks at Porter & Company warned
00:07that hyperscalers' earnings may be inflated by circular cloud contracts
00:12with OpenAI and Anthropic, according to Benzinga.
00:15Data shows the two AI firms account for about half of cloud backlogs,
00:20including 49% of Microsoft's $627 billion and 51% of Amazon's $464 billion.
00:29Alphabet and Oracle show similar reliance at 43% and 54%, respectively.
00:35Hendricks said price-to-earnings ratios are misleading because the E reflects a cycle
00:40where hyperscalers fund AI firms that then pay for cloud services.
00:45He said free cash flow has turned negative, forcing debt issuance,
00:49and warned the earnings component of valuations may be a total mirage.
00:54Hendricks warned that reliance on a closed loop of AI funding
00:58raises doubts about the sustainability of big tech valuations
01:01and cautioned investors about the ongoing AI hype cycle.
01:05He said the bubble is in the earnings component of P-E ratios
01:08and warned that the outcome of this spending trend will likely end poorly.
01:12For all things money, visit Benzinga.com.
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