Michael Lebowitz, CFA

The S&P 500 is at extremely oversold levels even as nearly half of its constituents are overbought, highlighting an extraordinary divergence between the index and its underlying stocks. This is the value/growth rotation at work, and a reversal is becoming more likely. @thedailyshot @bespokeinvest

10-23-26 Wall Street Loved Buybacks — So Why Does It Fear AI Spending? In this Short video, @MichaelLebowitz and I discuss one of the biggest mistakes investors make when evaluating AI hyperscalers like $GOOGL, $MSFT, and $AMZN: treating all negative free cash flow as equally concerning. There's a fundamental difference between a company burning cash because its underlying business is struggling and a highly profitable company temporarily sacrificing free cash flow to invest in future growth. When negative free cash flow results from operational problems, that's a legitimate warning sign. But when a company generates substantial operating cash flow and deploys that money into AI infrastructure, data centers, and other long-term investments, that's an entirely different situation. Before the AI CapEx boom, major technology companies were generating approximately $189 billion in combined annual free cash flow. That figure has come under pressure as AI spending accelerates. But projections suggest free cash flow could stabilize in 2027, recover to approximately $150 billion in 2028, and reach a record $389 billion by 2029. If those forecasts materialize, today's spending could lay the foundation for substantially greater future cash generation. And here's where Wall Street's reaction becomes particularly interesting. A few years ago, investors celebrated when Big Tech companies spent billions buying back their own shares. Buybacks supported stock prices, but they also suggested that management had limited opportunities to reinvest excess cash into the business. Now those same companies are saying they have something potentially far more productive to do with that money. Instead of simply repurchasing shares, they're investing aggressively in AI, even raising additional capital through debt or equity to finance projects they believe could generate substantial future returns. Consider the economics: if a company can finance an investment at a 5–6% cost of capital and potentially earn 20%, 30%, or even 40% on that investment, the long-term value creation could be enormous. Yet Wall Street cheered the buybacks and now worries about the investments. Of course, those returns aren't guaranteed. AI spending must eventually translate into sustainable revenues, profits, and cash flow. But the critical question isn't whether AI CapEx is temporarily reducing free cash flow. It's whether that capital can generate returns exceeding its cost. Negative free cash flow caused by a deteriorating business is a problem. Negative free cash flow caused by potentially high-return investment is an entirely different story. And that's the distinction investors shouldn't overlook. Please ❤️like, bookmark🔖, and 🔁share with fellow investors.