Data Centers Earn, Washington Doesn't

Mike Nicoletti, Hunt Lawrence, and Jason Wallace walk this week’s Cash Flow Memo: an oil strip pricing a long stalemate, a $2 trillion deficit and a grinding 10-year, what hyperscaler data center capex actually earns, the hyperscalers against the chipmakers, BioNTech’s cancer vaccine miss, and the FDA’s food additive loophole. The Cashflow Memo Key Takeaways * The 2027 oil strip at $83 against a $93 near month leaves only $10 of backwardation (the full $20 does not show up until 2028), so the futures market is pricing the Iran and Houthi standoff as a drawn-out stalemate; the $3.30 2027 gas strip disappoints a market that expected $4, and Hunt says hold upstream gas but put no new capital there while Permian associated gas drives two-thirds of supply growth. * Exhibit A is marked to the CBO’s just-under-$2 trillion FY26 deficit, with defense pushing FY27 higher and all other flat near $1.3 to $1.35 trillion; Hunt expects the 10-year to keep grinding higher with no Fed QE rescue, which hurts housing and its suppliers but not the AI trade or the broader profit cycle. * Apple spends $8 billion of capex against $144 billion of pre-capex cash flow, while Amazon, Alphabet, and Microsoft spend nearly all of theirs, about $450 billion combined, on data centers; SpaceX’s Memphis build ($20 billion for about a gigawatt, rented out for roughly the same amount) implies a payback of one to three years even on 90-day-cancellable contracts. * Mike calls the SpaceX-Google deal the first market-rate data center contract, which implies the hyperscalers’ installed capacity is under-earning and boards will push for more revenue per gigawatt; asked to pick Page 1 (the hyperscalers) or Page 3 (Nvidia, TSMC, Micron), Jason takes the hyperscalers on the durability of token demand, and Mike takes the chips, arguing that the slower Page 3 moves, the better for Page 1. * Nvidia now sells SpaceX nearly everything inside the data center shell, funded by $186 billion of free cash flow, and Micron’s customers are prepaying for sold-out capacity; in healthcare, BioNTech’s head-and-neck mRNA cancer vaccine missed its Phase 3 progression-free-survival endpoint (one win in melanoma, three misses), and the FDA’s August GRAS proposal would require notification for an estimated 1,000 to 3,000 self-certified food additives, with no penalty for failing to file. Show Notes [00:32] Oil Exhibit C is unchanged. Houthi missiles and Iranian drones are hitting the Gulf, but with $93 oil now and $83 for 2027, the full $20 of backwardation does not arrive until 2028. The market is pricing a drawn-out stalemate. [01:56] Gas The $3.30 2027 gas strip disappoints a market that expected $4. Hold upstream gas, but no new capital until supply resolves, with the Permian supplying two-thirds of new gas. [02:49] Deficit Exhibit A is marked to the CBO’s just-under-$2 trillion FY26 deficit. Hunt expects the 10-year to keep grinding higher with no Fed rescue: bad for housing, not for the AI trade. [08:38] Capex vs. the Deficit Apple spends $8 billion of $144 billion in cash flow on capex; Amazon, Alphabet, and Microsoft put about $450 billion into data centers. SpaceX’s Memphis numbers suggest that spending pays back in one to three years. [12:22] Market-Rate Compute Mike calls SpaceX’s Google deal the first market-rate data center contract, which means the hyperscalers’ existing capacity is under-earning and their boards will push for more revenue per gigawatt. [14:10] Page 1 or Page 3 Hunt makes them choose: the hyperscalers, or Nvidia, TSMC, and Micron. Jason takes durable token demand; Mike takes the chips, with ASML booked out through 2028. [18:19] Nvidia Sells the Rack Nvidia now sells SpaceX nearly everything inside the data center shell, funded by $186 billion of free cash flow, while Micron’s customers prepay to lock in capacity. [21:15] BioNTech Vaccine Miss BioNTech’s mRNA cancer vaccine missed its Phase 3 endpoint in head and neck cancer, making it one win and three misses. Jason explains the hot-versus-cold tumor split. [22:55] The GRAS Loophole The FDA estimates 1,000 to 3,000 food additives are self-certified as safe and never disclosed. Its August proposal would require notification but carries no penalty, while California and Texas move faster. Download this week’s Cash Flow Memo at telltales.us and subscribe for next week’s episode. Cashtags $AAPL $AMD $AMZN $ASML $BNTX $DELL $GOOGL $MSFT $MU $NVDA $TSLA $TSM This post and the information herein are intended for informational purposes only. The views expressed herein are the author’s alone and do not constitute an offer to sell, or a recommendation to purchase, or a solicitation of an offer to buy, any security, nor a recommendation for any investment product or service. While certain information contained herein has been obtained from sources believed to be reliable, neither the author nor any of his employers or their affiliates have independently verified this information, and its accuracy and completeness cannot be guaranteed. 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