US big tech maxed out on capex

Assuming buybacks & dividends are “required”, the unallocated cash flows are matching the capex figure already.

This means additional room to add capex is limited.

Put it in another way, free cash flows after shareholder returns are near 0.

For example, Alphabet got $125bn op. cash flow in 2024, paid $53bn in capex, $62bn in buyback and $7bn in dividend. FCF after shareholder returns is only $3bn, or 2.5% of its operating cash flow.

Meta, with 10% unallocated operating cash flow in 2024, will increase its capex by 50% in 2025. If Meta’s op. cash flow grows 10% in 2025, then FCF after shareholder returns in 2025 is only $3bn, or 3% of its operating cash flow.

Microsoft in calendar year 2024, has $10 billion of unallocated free cash flow. But that should be smaller if looking at its fiscal year 2024.

[Reading Buffett] 2024

Berkshire paid the most corporate income tax in the US, or about “5% of what all of corporate America paid”.

Buffett complained a bit about US fiscal recklessness and the inability of fixed income securities to protect buying power.

Buffett still prefers equity – but he didn’t say public equity!

“P/C insurance growth is dependent on increased economic risk. No risk – no need for insurance. ”

Berkshire borrowed “fixed” rate in yen! How beautiful the transactions were. But if Japan’s interest rate were to rise significantly in the future (when Berkshire needs to refinance), will Berkshire find those Japanese dividend less attractive?

[Reading Buffett] 2023

Wage increases due to inflation and negotiation reduced BNSF earnings, in a degree more than Buffett expected. Revenues also fell.

Buffett increased holdings in Japan’s “conglomerates” – these companies are diversified, repurchasing their shares, receiving lower wages at C-level, and reluctant to issue shares. Those purchases began in 2019.

There were some problems with BHE – no fixed return as a utility, and with rising climate change induced problems.

Stick with wonderful businesses! “Patience pays, and one wonderful business can offset the many mediocre decisions that are inevitable.”

Big companies under Trump – invest in US, or rollback of DEI

Mar 3 – both Nvidia and Broadcom shall use Intel as a foundry to produce chips.

This should add additional pressure to gross profit margin to both companies.


Feb 25 – Apple shall invest $500bn in the US in the next 4 years, including a new advanced manufacturing facility in Houston to produce servers for Apple Intelligence and Private Cloud Compute.

Apple also supported billions of $$ for TSMC’s Fab 21 facility in Arizona.


Not to mention the rollback of those DEI policies across companies, e.g.

 

[Reading Buffett] 2021

When TTI’s founder was considering a sale, Berkshire was preferred over competitors and other financial buyers, as Berkshire won’t cut back-end jobs and won’t be a reseller.

“Teaching, like writing, has helped me develop and clarify my own thoughts.” – totally agree.

 

 

[Reading Buffett] 2020

Berkshire’s structure – “Although our form is corporate, our attitude is partnership.”

There are two different type of individual investors with Berkshire – those own and trade stocks, and those “who simply trust us to represent their interests, whatever the future may bring”.

Berkshire has become the No.1 owner of US PP&E. The runner-up is AT&T.

[Reading Buffett] 2018

One source of funding or leverage Berkshire has is deferred tax liabilities, which is a interest rate free loan. Those rose from unrealized gains and accelerated depreciation.

In the next annual letter, Buffett will not list book value per share any more; instead, the per share market value will be compared vs. S&P 500.

[Reading Buffett] 2017

Redefining risk-free: “risk-free” long-term bonds in 2012 were a far riskier investment than a long-term investment in common stocks, as

investing is an activity in which consumption today is foregone in an attempt to allow greater consumption at a later date. “Risk” is the possibility that this objective won’t be attained.

Another lesson from Buffett – stick with big, “easy” decisions and eschew activity.

[Reading Buffett] 2016

For certain stocks, Buffett has no intention to sell, however, those are still considered “available for sale” stocks.

Buffet’s tax lesson on dividends – “For a non-insurance company – which describes Berkshire Hathaway, the parent – the federal tax rate is
effectively 101⁄2 cents per $1 of dividends received. Furthermore, a non-insurance company that owns more than 20% of an investee owes taxes of only 7 cents per $1 of dividends. That rate applies, for example, to the substantial dividends we receive from our 27% ownership of Kraft Heinz, all of it held by the parent company.”

Buffett compared results of HFs vs. S&P 500 over the past 9 years. On average S&P 500 won.