Looming tech threat
QQQ•Capital Economics estimates hyperscaler capital spending will have just about exceeded incoming cash flows in the third quarter, increasing financing needs. It says rising yields and Treasury term premia could threaten debt-funded tech investment and company share prices.
1. Capex pressures cash flow
Capital Economics estimates that hyperscaler capital spending will have just about exceeded incoming cash flows in the third quarter, leaving aggregate cash flow negative. Thomas Mathews, the firm’s head of markets for Asia-Pacific, said this could increase tech companies’ financing needs and make earnings and share prices more vulnerable to rising yields.
2. Other risks to spending
Mathews said markets already reflect expectations for almost three quarter-point rate hikes in the coming year, limiting the potential impact on yields. He also cited higher oil prices, rising Treasury term premia, fiscal problems, market volatility, geopolitical risk, waning demand from key institutions and uncertainty about Federal Reserve policy as risks to debt-funded capital spending.
