Capital Flees AI’s CapEx Bill as Warsh Takes the Podium

Dear readers,

Yesterday we asked how markets would greet Kevin Warsh’s first Jackson Hole address as Fed chair. The answer arrived this morning, and it looks less like conviction than retreat. Even as Nvidia’s blowout quarter is still being digested, institutional money is pulling out of equities at a pace not seen since March — proof that a great earnings print and a great market environment are no longer the same thing.

The Bill for AI Comes Due

Investors withdrew a net $22.33 billion from U.S. equity funds over the past week, the sharpest outflow since March, while global equity funds shed nearly $6 billion, snapping a 13-week run of inflows. The trigger isn’t doubt about AI demand — it’s the sheer scale of what building it out actually costs. IREN, the bitcoin miner turned cloud provider, rattled the market with plans to spend $25 billion to $30 billion expanding AI infrastructure in fiscal 2027. Analysts note the unit economics are improving, but the stock still trades around $40, nearly half its 52-week high of $76.87. A clear line is forming in the sector: pick-and-shovel sellers like Nvidia — steady around €196 in European trading — keep collecting the cash, while the cloud and infrastructure players financing the buildout face mounting skepticism about how they’ll pay for it.

Antitrust Worries Freeze the Financing Spigot

Nvidia just demonstrated how quickly that skepticism can turn into policy risk. The company has paused a financing program it launched only in July — one that offered AI cloud partners credit support in exchange for revenue-sharing arrangements — after antitrust concerns surfaced. The fallout was immediate: SharonAI’s stock slid to around $59 on August 26 as the broader “neocloud” complex sold off in sympathy. Betting on AI infrastructure now means underwriting not just the technology roadmap but the regulatory exposure that comes with depending on a dominant supplier.

Warsh’s Jackson Hole Message Lands Badly for Growth Stocks

All of this collided with the macro backdrop today, as Fed Chair Kevin Warsh delivered his keynote at Jackson Hole with inflation proving stickier than hoped. Markets are now pricing roughly a 30 percent probability of a September rate hike, versus nearly 70 percent for a pause — odds that leave little room for the “higher for longer” scenario the tech sector fears most. For capital-intensive expansion plans, even a pause at elevated rates is a headwind; another hike would be worse. The combination of rising capital costs and multibillion-dollar CapEx budgets is forcing investors toward a much stricter test: does the cash flow actually show up?

Should investors sell immediately? Or is it worth buying Nvidia?

Software Passes That Test — Again

Salesforce just proved it does. As we noted yesterday, the CRM giant posted adjusted earnings of $5.90 a share against estimates of $3.27, on revenue of $11.35 billion, and management raised guidance for fiscal 2027. What’s new since then: institutional conviction is following the numbers. North Star Asset Management and Glenview Trust Co. both added meaningfully to their Salesforce positions over the past quarter. The read-through for portfolios is unchanged from yesterday but reinforced today — established, high-margin software currently offers a far better risk-reward profile than capital-hungry hardware and cloud names.

Europe’s Industrial Reckoning

Away from tech, European industry is confronting its own capital allocation crisis. Volkswagen heads into a pivotal supervisory board meeting next week, with management pushing to double planned job cuts to compete with Asian rivals amid falling China sales and looming U.S. tariffs. Labor unions and Lower Saxony, the automaker’s largest shareholder, are pushing back. Volkswagen captures the broader European blue-chip dilemma: the case for radical restructuring is obvious, but layered ownership structures threaten to dilute execution. Until that tension resolves, these industrial giants remain cheap on paper and value traps in practice.

The Takeaway

Jackson Hole didn’t deliver the dovish relief the tech sector was hoping for, and that’s now colliding with a market already nervous about who’s going to pay for the AI buildout. If the rate path stays higher for longer, the rotation already underway — out of capital-intensive growth stories and into cash-generative quality names — should keep accelerating. In this environment, stock-picking centered on balance-sheet strength isn’t a preference. It’s the job.

Have a great weekend,
The StocksToday.com Editorial