Moody@MoodyWriter13
I cannot recall a time when the stock market was as distorted as it is today. The valuations of many high-quality companies have fallen to bargain levels, while semiconductor and AI Infrastructure stocks are trading at multiples that price in earnings far into the future. Many read these low valuations as a sign of structural weakness. From my perspective, the clearer cause lies elsewhere.
Capital is not unlimited. The enormous sums being invested in AI infrastructure are not available for other investments. By now, even the hyperscalers are investing more than they earn, they are tapping the capital markets. The concentration is not just visible in listed markets; it runs through the entire capital stack. The same pattern shows up in startup funding. venture capital is flowing overwhelmingly into AI, while founders in other sectors, even with strong businesses, struggle to raise at reasonable terms. When I look at the returns that sectors outside the AI universe currently offer, I doubt that the capital flowing into AI is being deployed wisely and will pay off in the end.
What strikes me most is the resulting mispricing on both sides. The market is currently offering, at bargain prices, companies that will most likely still be successful ten years from now, proven business models, durable competitive positions, reliable cash flows. At the same time, it is paying premium prices for companies that might, in ten years, become what the unglamorous names already are today. The asymmetry is striking, and it is rarely been this clear-cut.
Asset classes always compete with each other, and in a rational market, capital flows to wherever investors can achieve higher returns with a better risk-reward profile.
The problem is that right now nobody really knows what the future return on each dollar invested in AI infrastructure will be. As a result, imagination runs free, and meaningful comparisons become impossible.
At this point, I like to turn to the analogy of the market’s eye, in reference to the Eye of Sauron. When the eye is fixed on a single point, and it is fixed more intensely right now than at almost any time before, everything else falls into uncovered shadow. As an investor, you can choose between two paths. You can march, like everyone else, up to the gates of Mordor, into the place the eye is watching, and try your luck there. Or you can take the long way around and walk to Mount Doom unobserved.
We all know which is the smarter choice. And yet, most prefer right now to go where everyone else is, drawn by quick gains and compelling stories.
You’ll probably ask which sectors I mean. I’ve written about several companies lately already. I don’t own Mercado Libre, but it’s the perfect example. At these prices, it’s a no-brainer over the long term.
