Whether massive AI infrastructure spending pays off has split the market. In a November 2 investor letter, Pershing Square founder Bill Ackman backed the hyperscalers, arguing that the market both penalizes them for build costs and underestimates the future revenue and earnings growth those investments will unlock.
Picks-and-Shovels Won, but AI Hyperscalers Look Undervalued
Ackman concedes that "picks-and-shovels" suppliers — firms providing AI infrastructure — outperformed the hyperscalers this year, but he contends analysts fixate on capex while ignoring the revenue elasticity those investments can release. He estimates pre-tax return on invested capital for hyperscalers at 15% to 25%, suggesting they can both fund AI buildouts and harvest returns.
Balance Sheets Sustain Long AI Spend
His second argument is the balance sheet: hyperscalers carry almost no net debt and can fund most capex from the enormous free cash flow of core businesses, unlike emerging cloud firms with financing and debt pressures. Even if revenue growth disappoints, he notes, they would cut capex, so capital intensity falls and free cash flow beats consensus either way.
What to watch: whether cloud capex guidance is revised up in the earnings season, whether sentiment stabilizes after the Nasdaq 100's pullback erased about $2 trillion in market value, and whether high-value inference services and proprietary apps become the main path to monetizing compute.