The Tidbits Take the Day and Take the Town

Devastating little tidbits flashed like fireflies all over the economic news: Alphabet, the parent company of Google, reported negative cash flow (one of the warnings I’ve been giving about the huge stock bubble), and its stock immediately crashed 13%. No forgiveness of that negative cash flow all of a sudden. Investors had been willfully ignoring such things as if they were unimportant. Not anymore!

A 13% drop might not sound like the end of the world, and it’s not, but it is one enormous cliff because 13% of Alphabet is a HALF-TRILLION-DOLLAR plunge in market cap (a measure of company value) in a single day! This is the biggest one-day crash in Alphabet/Google stock valuations since the company began!

But now get this: In total dollars lost, it is also the second-largest bust in market cap for any company in a single day in stock-market history! It was beaten only by Nvidia’s $600-billion stock plunge on January 27, 2025, which was also an AI crash event triggered by concerns over competition from a Chinese AI company.

Alphabet lost half a trillion in value over reporting a negative cash flow of $ 9 billion. That’s a nice markup on its losses! It loses more than 50 times in market value what it lost in cash flow. That’s what happens when a bubble pops. Moves become exaggerated because suddenly investors say, “OH, I guess this little thing I’ve been ignoring for months does still matter.” I’d say the market is not in a forgiving mood any longer for these negative cash flows I’ve been warning about. So, it’s the crash over cash!

Wolf Richter pointed out recently, as I noted, that a number of major AI companies may not need to return to the bond trough for some time in order to complete their buildouts because they have completed a lot of fundraising for now and are sitting on piles of cash, but that is cash for which they are deeply in debt, not from positive cash flow. It is not cash cash they own. It’s cash on loan.

The historic-size market response to negative cash flow may mean that even those companies that have already raised a lot of cash by issuing bonds—to the point where they won’t need to rush out right away to raise more—could still wind up in sudden trouble if the focus shifts to just “how much cash can they MAKE?”

Now that the bond market is this unforgiving all of a sudden about negative cash flows for one of the world’s largest companies like Alphabet, then it also may not be so forgiving of other AI giants whose income-and-expense reports show negative flows, especially when you consider that …

Alphabet reported negative free cash flow of $9.07 billion for the third quarter, compared to the $2.7 billion analysts expected. The Google parent maintained its full year capital expenditure guidance of between $195 billion and $205 billion.

Even though Alphabet came in right on target with its earlier guidance for its capital expenditures for the year, the market was still hostile toward it. This was like a horde of investors carrying pickaxes, pitchforks and torches. The reason given for the general hostility that pervaded the market (and took all indices down) was …

The earnings reports come as investors scrutinize AI spending plans of tech companies and are focusing on the returns on those investments.

Alphabet heavily invests in AI, integrating AI capabilities across its various products and services, including Google Cloud and Workspace, so it is deeply embedded with the AI trade. Microsoft did better in the market because its AI development is more conservative financially:

Microsoft reported $45.2 billion in capital expenditures and finance leases during the quarter, which was 30% higher than a year ago, but below analyst projections of $50.67 billion. Free cash flow fell 27% to $18.63 billion but remained positive.

So, Microsoft ended the day roughly flat. The last boldface phrase there is key. As I’ve been saying these last few weeks, one of the reasons the tech wreck is coming is that investors are becoming less forgiving of negative cash flows. They want to see real profits from operations. Microsoft avoided negative cash flow. Alphabet did not.

“Microsoft is building out its architecture in a measured way and as such contains fewer surprises,” Ben Barringer, global head of technology research at Quilter Cheviot, said on Thursday. “Alphabet, by contrast, saw its share price hit after hours as a result of a fairly messy set of results and a poorly handled earnings call” .

Let’s clarify that: Alphabet saw its share price slaughtered. Its worst plunge EVER! It may partially recover tomorrow. Who knows? But the reaction was one for the record books.

“The problem for Google is it faces an innovator’s dilemma and doesn’t know whether to protect its core business or look to join the disruption. As such, Google has lost its edge with Gemini and is behind peers on agentic AI,” Barringer said.

Alphabet is struggling with an existential question: Is it a search engine company or an AI compay? It’s trying to be both, and the new AI part is somewhat cannibalizing the old search-engine part because people now care less about the pages of search results than just looking at the top lines to read the AI’s summary of all the specifically requested knowledge contained in the search results without the need to go reading through all of that to find it. This is where the AI bubble, to the extent that it does show success, spreads broadly to become a problem for other tech stocks.

But here is how the Squawk Boxers put a nice gloss on it:

“I don’t think it’s a sea change,” Devitt told CNBC’s “Squawk on the Street” on Thursday. “If it’s a problem for Alphabet, it’s a problem for any consumer-facing AI agent or LLM as well. And so, it’s a problem that I think is ultimately going to be resolved. And when it does, Alphabet, with its 4 billion search customers that become AI customers, is in an enviable position.”

That is likely true a couple of years down the road, and it may be why Google becomes one of the big companies that ultimately carries the “new paradigm” forward, as I’ve said happened for some companies in the dot-com bust; but that doesn’t help keep it from going down the toilet with all the rest for now as the AI Bubble bursts (also just like in the dot-com bust, as I’ve been pointing out all along the way). It’s kind of looking like those big piles of cash that a number of AI companies managed to already amass from bond issuances are not going to save them from the other troubles AI is facing, such as “CAN YOU PROVE A PROFIT THAT MAKES SENSE AS AN ROI NOW?”

I write it in screaming letters because AI developers have long turned a deaf ear to that expressed concern of some investors, and most investors ignored it, too. That concern became a scream in the developers’ ears. Big investments demand big profits, and investor patience is wearing thin, as I said months ago we’d likely see this year. It’s now happening.

Even the permabulls are starting to get it

Earlier this week, even …

CNBC’s Jim Cramer warned Tuesday that investors may be getting ahead of themselves by declaring the artificial intelligence trade back on track…. Cramer cautioned the renewed optimism doesn’t resolve the pressures facing the data center trade, which was hit hard late last week.

As I’ve been cataloging here, there are many pressures, each of which is considerable and still building:

• Community resistance to data center construction is rising quickly due to light pollution, noise pollution, high water consumption, and HEAT.

• High need for megawatt hours of electricity that can’t even be generated. They might build the center and not be able to run it.

• Higher cost for electricity soaring right now due to the war on oil. They might be able to find the electricity, but won’t be able to afford it off the revenue they are actually making.

• Trump’s threats of a return to hotter war are likely driving up energy prices and all other prices even more after the election passes. Therefore,

• Higher cost for credit on future bonds to keep Ponzi rolling forward as all of that inflation pushes bond rates up.

• Lack of PROFITS to pay bills if the credit Ponzi scheme stops producing wider circles of fools ready to go longer on the AI bond trade to keep funding the show. (I.e., they are zombie companies right now.)

• Shiploads of truly apocalyptic concerns about AI generated by the AI creators, themselves, including the latest Doomsday IPO prospectus put out by Anthropic.

Even the usually bullish Cramer says,

“With the exception of Nvidia, these data center companies don’t have a lot of money. So they have to borrow the money,” Cramer said. “The rates are getting so high that the return is getting uncertain. That hasn’t changed at all.”

That is a zombie corporation by definition—if you have to borrow money to keep the enterprise going because it won’t run sustainably just on its own revenue from its services. Some companies have stockpiles of cash from credit that may get them through for a while, but they still have to prove they can make profits on a scale that makes sense of the massive investments already made, and investors might not wait around as these companies slog through their borrowed cash long enough to find out if they can make real profits on a scale that justifies investment. I think this indicates they won’t. Plus, these companies have enormous cash-out commitments that can eat up those cash piles in a hurry if data centers don’t get completed and go into production, easily possible just with delays due to the widespread community rebellion against them.

There is one more danger—the IPOs themselves. Take it from the permabull:

Jim Cramer warns this overlooked danger could threaten the market rally

CNBC’s Jim Cramer warned Monday that a wave of massive initial public offerings and capital raises could threaten the bull market.

Anthropic, the company behind Claude, filed its IPO prospectus Monday, moving one of Wall Street’s most anticipated public debuts a step closer. Investors have long awaited public offerings from AI leaders Anthropic and OpenAI, but Cramer said that their potentially massive fundraising needs could strain an already crowded market. With $148 billion raised through IPOs so far this year, he fears the influx of new shares could outstrip investor demand and derail the rally.

“Politics can weaken the bull, higher rates can choke it, but if you want to slay the darn thing, use the IPO lance and stab it again and again,” the “Mad Money” host said. “It just gets weaker and weaker until it is weak enough to be slaughtered with the ease of a bad quarter, a rate hike and a run on the margin bank.”

There are some big IPOs coming in search of hungry potential shareholders, but right now money is exiting the stock market, not flooding into it. Recent stock moves didn’t just take down tech stocks. They took down all three major averages and hard-core makers of real things like Caterpillar.

Here’s another tidbit with a burnout ember glow

Look at these tech guys from the headlines below:

ServiceNow shares plunge 27% to worst day ever after earnings revive AI disruption fears.

This isn’t an AI company. It’s a company whose product is being disrupted by AI. Their plunge makes these two worst-days events side by side for two companies. This one is a software company, and that sector of the tech market is an example of the damage that comes to the extent that AI is successful:

ServiceNow shares sank 27% on Thursday and recorded their worst day on record after the enterprise software company’s third-quarter results underwhelmed, reigniting artificial intelligence disruption concerns.

“This was a little bit uncharacteristic for ServiceNow standards, just in terms of the lack of upside,” Citi’s Tyler Radke told CNBC on Thursday.

Revenue grew more than 20% during the period to $4.11 billion, which was roughly in line with a $4.10 billion estimate from analysts polled by LSEG. Adjusted earnings came up short at $1.00 per share, compared to a forecast of $1.02.

The results did little to overturn recent … concerns that new AI capabilities will upend traditional software business models.

Even with huge revenue gains—a soaring quarter—fear of disruption is big for software companies because AI removes the need for a lot of new software as it designs its agents to do whatever you need done on voice command on the fly.

I experienced that recently as I just employed a publicity company that uses AI. I used their AI to fix the ways in which their AI’s emails were not the best. It analyzed each question I had about what it was doing, looked at the next 100 emails it will be sending out over the days ahead, each of them tailored specifically to the actual interests of specific podcasts as they match up to the actual things I’ve written about over past years; then it rewrote all of that in less than a minute and upgraded its instructions for how it will design all future emails.

I didn’t have a program that could do that. The AI just understood my normal English instructions, figured out what was causing each of the shortcomings I asked about and how to address them most effectively, and then carried that out. Then it told me it will monitor the fifteen emails that are scheduled to go out tomorrow to see how well those emails implemented the final instruction changes we made and then get back to me to report on the outcome. (As I say, I don’t use AI to do my writing for me, but I am willing to use it for creating the graphic-novel-style illustrations for each editorial and for my publicity because I don’t have time to do those things, and that way I can keep MY time focused on the analysis and writing for my articles.)

One factor spooking investors is the lack of immediate payoff for the company’s investments in its newly formed forward-deployed engineering team that embeds in enterprises to build AI solutions, Radke said.

“It’s just going to be a little bit longer of a waiting game, and so I think the market, you know, wanted to see something a little bit sooner,” he said. “I think you got to wait until next year to really see that inflection.”

This is the big problem I pointed to months ago when people were saying that tech stocks, especially AI, couldn’t crash because they are the wave of the future. My claim was that they will crash because the day is coming soon when investors will tire of waiting for those proofs of profits and will say “Deliver now!” just as they did with the dot-com companies. The AI companies have gone way long on development without proof of concept (from a profit standpoint), meaning any hope of a return big enough to make sense of the massive investment and the soaring interest on their debts.

The big bust guru speaks up

You can also take it from one of the guys who made bank on the last big bust in 2008. Steve Eisman says he has stripped down to net neutral on his positions with the AI trade. While he’s not actively shorting the market as he did around 2008, he is not long on it any longer either because he thinks the AI trade is now reaching its tipping point. (But he knows from scary experience last time around that, if that takes a month or two longer than you bet it will, covering your shorts can be a frightening, even breathtaking, ride. So, he’s holding out a little longer.)

Steve Eisman of “The Big Short” fame thinks the artificial intelligence trade is near a “tipping point,” but he’s not ready to outright bet against it yet.

“I’ve gotten much more conservative in my own portfolio. We have shorted against the box a whole bunch of our positions, so that our risk is much, much, much lower. But I’m not, like, net short any,” he told CNBC’s “Squawk Box” on Thursday….

Anthropic left its latest revenue figures blank in its initial IPO filing, but Eisman believes they will show a significant deceleration from the prior quarter. Other figures in the report point to capital efficiency issue, he said….

Yet, Eisman said he was scared to make a definitive bet against the AI trade because of how intertwined it is with the market as a whole, calling it “impossible” for the technology sector to be siloed away from the broader equity market and the rest of the economy.

“So much of the market is on the other side, and it’s still reading tea leaves. I think we’re getting closer. I think the numbers from Google scared people,” he said.

Yes, they clearly did. Like I’ve said, one big piece moves; then a couple of others around it move. Soon the whole mountain is slowly sliding. Eventually it is quickly avalanching. But there is a lot to get going.

With that, let me close with another interesting little tidbit of truth

The Wendy’s fast-food chain is facing a wave of bankruptcy closures as one of its major franchise holders has hit major trouble. The bankrupt restaurant franchise holder lists beef prices as a factor, and the article notes that Trump has tried to help beef prices by removing tariffs on some beef. Now isn’t that odd? Trump claims tariffs have not raised prices at all, but somehow removing them is supposed to be a big help in lowering prices.

I just found that to be another interesting little tidbit, as major restaurant groups actually fold under the pressures of soaring inflation, because soaring inflation is the one thing I am saying is the biggest driver of the entire Everything Bubble Bust.

Here’s yet another interesting little tidbit about the sea change in politics (a very tiny tidbit): My article this week titled “Donald Trump Just Told All of America He ‘Doesn’t Give a Damn’ about them!” just became one of my most-read ever on this site and most-commented-upon and most restacked. That’s interesting because, as the other headlines show, a huge sweep of voter scorn is coming against Trump over the Epstain and Trump’s latest Forever War and his management of the economy, especially inflation, the kind of article that used to bring me a lot of scorn is suddenly finding a lot of approval.

And one semi-final tidbit: That inflation is rising again in the news due to the war and tariffs, with notes that the tariff inflation will start passing through again now that the tariff refunds are pretty well over and used up. The tariff refunds, the article says, were providing a bit of cushion from companies having to pass along price increases. You didn’t get a refund, yourself, but you may have benefited from the Supreme Court’s cancellation of the tariffs anyway by getting some protection from even more inflation during the time the refunds were streaming in.