The tech business model has fundamentally changed. It has moved from the early Google model—a high-margin, low-CapEx "infinite money glitch"—to the current AI paradigm, which requires a capital-intensive, debt-financed infrastructure buildout resembling heavy industries like oil and gas.

While increased CapEx signals strength for cloud providers like Microsoft and Google (who sell that capacity to others), the market treats Meta's spending as a pure cost center. Every dollar Meta spends on AI only sees a return if it improves its own products, lacking the direct revenue potential of a cloud platform.

Tech giants are shifting from asset-light models to massive capital expenditures, resembling utility companies. This is a red flag, as historical data shows that heavy investment in physical assets—unlike intangible assets—tends to predict future stock underperformance.

In the current AI-driven tech M&A landscape, traditional valuation metrics are being upended. For high-potential companies, the exit multiple is sometimes calculated based on total capital raised (e.g., 10x) rather than annual recurring revenue (ARR), signaling a major shift in valuation.

The burn multiple, a classic SaaS efficiency metric, is losing its reliability. Its underlying assumptions (stable margins, low churn, no CapEx) don't hold for today's fast-growing AI companies, which have variable token costs and massive capital expenditures, potentially hiding major business risks.

The AI buildout is forcing mega-cap tech companies to abandon their high-margin, asset-light models for a CapEx-heavy approach. This transition is increasingly funded by debt, not cash flow, which fundamentally alters their risk profile and valuation logic, as seen in Meta's stock drop after raising CapEx guidance.

Tech giants are no longer funding AI capital expenditures solely with their massive free cash flow. They are increasingly turning to debt issuance, which fundamentally alters their risk profile. This introduces default risk and requires a repricing of their credit spreads and equity valuations.

The huge CapEx required for GPUs is fundamentally changing the business model of tech hyperscalers like Google and Meta. For the first time, they are becoming capital-intensive businesses, with spending that can outstrip operating cash flow. This shifts their financial profile from high-margin software to one more closely resembling industrial manufacturing.

Companies like Meta are ceasing buybacks to fund existential AI CapEx, transforming them from high-margin, capital-light software businesses into leveraged, capital-intensive infrastructure players. This fundamental shift invalidates past valuation models based on free cash flow.