Podcast Summary: "Big Tech Has Til Year-End…or Else."

Podcast: The Compound and Friends
Host: Downtown Josh Brown
Guests: Nick Colas & Jessica Rabe (Co-Founders of DataTrek Research)
Date: February 23, 2026

Episode Overview

This episode centers on the urgent, high-stakes question facing US Big Tech: With intense capital expenditure (CapEx) on AI and data infrastructure, how long will investors continue their patience before demanding clear, profitable results? Host Josh Brown, along with Nick Colas and Jessica Rabe, dig into the financial data, implications for markets, and the shifting allure of US versus international equities.

Key Discussion Points & Insights

1. The Expiring Patience for Big Tech’s AI (& CapEx) Bets

Timestamps: 01:38–02:58; 03:07–06:43

• Nick Colas’ Core Thesis:

  • Big Tech has a ticking clock—about 12 months—to prove that enormous AI investments justify the cost, or “the referendum will show up in the stock prices.”
  • “The clock actually started probably October, maybe even September of 25. And so I think I'm being a little bit generous actually about the year timeframe.” (Nick, 02:02)
  • The business model of Big Tech (Alphabet, Amazon, Meta) has rapidly shifted to being massively capital intensive, analogous now to auto companies.

• Staggering Asset Efficiency Decline:

  • Asset efficiency (revenue divided by property, plant, and equipment, PPE) is down sharply.
  • Alphabet, Amazon, Meta averaged 2.2x efficiency in 2023, meaning for every $1 in capital, they generated $2+ in revenue.
  • Forecast for 2026: down 42% (!) from 2023 levels, as CapEx investments soar.
  • “Ford's revenue to PPE ratio is 5x—way higher than any of these companies... Tech has become even more capital intensive.” (Nick, 04:15)

• Meta’s Off-Balance Sheet Maneuver:

  • Meta appears more efficient due to off-balance sheet operating leases for data centers.
  • “If you layer on that additional level of complexity, which ... is smart financing, but also worrisome ... then you end up with an even more capital intensive picture.” (Nick, 05:45)

• Biggest Question:

  • What will “prove” the investment is worth it?
  • Not just revenue growth—must see incremental, profitable growth; i.e., margins must begin to expand meaningfully from 2027 onward.

2. The Profitability Squeeze

Timestamps: 06:43–09:03

• Margins Are Compressing:

  • Operating margins will fall from ~39% (average) to 34%.
  • “Markets do not like it when margins compress. They worry about competitive advantage ... profitability ... those capex budgets.” (Nick, 07:18)
  • Profitability must bounce back—otherwise, Wall Street’s patience will run out.

• No Real Choice for Big Tech—But Investors Have Options:

  • Companies feel compelled to spend aggressively to avoid losing out in this platform shift.
  • “Some have called it a suicide pact... You can't be in this group of companies ... and spend materially less than your peers.” (Josh, 08:23)
  • Investors, however, can “allocate somewhere else while the world figures the answer to that question out.” (Josh, 10:44)

• CapEx Is Consuming All Cash Flow:

  • “Back in 2023 ... 44% of their operating cash flow on CapEx... this year Alphabet is going to be 103%, Meta 106%, Amazon 133%. These companies ... spend[ing] all of it.” (Nick, 09:18)

3. The Core Dilemma for Investors

Timestamps: 10:44–12:17

• Investors Enable Big Tech’s Gamble:
  • High valuations “come from the assumption that they will find the next big thing and make a ton of money off of it.” (Nick, 11:37)
  • “It's not like these companies are trading at 10, 12, 15 times earnings... They're trading at 25 and 30 times because the market's giving them a vote of confidence.” (Nick, 11:37)

4. Where To Go If Not Big Tech? US vs. International Stocks

Timestamps: 12:17–15:54; 17:06–25:13

Jessica Rabe's Framework:

• Sector Differences—Home Bias or Diversification?

  • S&P 500 is heavily overweight tech (~17 points) versus the rest of the world (MSCI ACWX), but underweight financials, industrials, materials.
  • S&P 500 is highly concentrated: Top 10 names = 35% vs. just 14% in ACWX.
  • “US mega cap tech alone accounts for about 35% of the S P versus only about 10% for comparable names in the rest of world index.” (Jessica, 15:54)

• International’s Recent Surge:

  • Rest of world stocks have recently outperformed US large caps by 11 percentage points (“between two and three standard deviations”—extremely rare).
  • Historically, US stocks outperformed by 4–6.5 pts annualized over 3, 5, and 10 years.
  • For the US to continue dominating, big tech's AI bets must deliver soon; “if the three year data starts showing rest of world outperformance, investors may start questioning whether big tech's AI investments have not fundamentally changed the story...” (Jessica, 16:47)

• Why US Has Outperformed Historically:

  • Disruptive innovation, scale, profitability focus.
  • Deep venture capital market and robust public pipeline (SpaceX, OpenAI, Anthropic eyeing IPOs).

5. Debating the Case for International

Timestamps: 18:46–25:39

• Momentum & Mean-Reversion:

  • When international outperforms, it often does so for multi-year stretches (“not a one year phenomenon”).
  • But jumping into rest of world stocks now means buying after a +2 to 3 standard deviation move—be aware of statistical extremes.

• US Exceptionalism vs. Change in Trend:

  • If AI CapEx pays off: “the American exceptionalism trade will continue through the end of this decade.” (Jessica, 19:54)
  • If not: big tech’s drag may force underperformance and money will rotate out, especially given big tech’s huge S&P 500 weighting.

• European & Japanese Comparisons:

  • Europe’s “re-rating” last year was at least one-third due to currency effects, not underlying fundamentals.
  • “Japan went through the wilderness for 20 years ... European stocks in Europe didn't go through that.” (Nick, 24:00)

• Value vs. Growth Mindset:

  • “Do you want to own Nestle and Roche or do you want to own Amazon and Meta?” (Nick, 21:29)
  • “If I'm talking about ... the entirety of those two markets, I think I would obviously answer US.” (Josh, 22:08)

Notable Quotes & Memorable Moments

• “Big tech has 12 months to show that AI is worth it. Do you really think that that's it? The clock is ticking.”
  — Josh Brown (01:38)

• “Ford is a very capital intensive business. But tech has become even more capital intensive.”
  — Nick Colas (04:20)

• “All of this CapEx spending ... will we see the referendum show up in the stock prices?”
  — Josh Brown (02:22)

• “Some people have called it a suicide pact. I wouldn't go that far. But you can't be in this group of companies ... and spend materially less than your peers.”
  — Josh Brown (08:23)

• “Investors can own a diversified portfolio of stocks and they don't actually care which company wins... The companies have a more existential problem.”
  — Nick Colas (09:22)

• “If AI doesn't look like it's going to pan out, people are going to look elsewhere and they're going to go to non US equities because of big tech has such an outsized large weighting in the S&P 500.”
  — Jessica Rabe (20:17)

• “If you're going to be long the US ... you are de facto betting these capex investments are going to start paying off. And ... that has to happen between now and the end of this year.”
  — Josh Brown (25:39)

Important Timestamps by Topic

• Big tech’s ticking clock/asset efficiency: 01:38–04:48
• Profitability and margin squeeze: 06:43–09:03
• CapEx devouring cash flow: 09:03–10:44
• Investors’ choices—stay or rotate: 12:00–12:43
• International vs. US sector differences/concentration: 13:04–15:54
• Cycle of international outperformance: 18:46–21:05
• Summing up the bet on US Big Tech: 25:39–26:09

Conclusion

The episode underscores a defining moment for US Big Tech and its investors: AI-driven capital expenditures must translate into clear, profitable returns by year-end or risk triggering a seismic allocation shift and a narrative change about US stock market dominance. With international equities catching a rare wave of momentum, every investor needs to decide: bet on Big Tech’s historical execution, or diversify before the tide possibly turns for good.

Further learning:
Follow Nick Colas & Jessica Rabe at DataTrekResearch.com and on YouTube.