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- Here's How to Act When the AI Buildout Meets a Balance Sheet
Here's How to Act When the AI Buildout Meets a Balance Sheet
Noah Zelvis
December 11, 2025
In partnership with
The pitch was to ride the AI wave, scale cloud, and let operating leverage sing. The reality check arrived in the cash-flow statement.
With revenue up but free cash flow plunging and leverage rising, the market is demanding tighter discipline and clearer line-of-sight to returns.
In a tape that still rewards execution, ambition alone isn’t enough.
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Western Digital | WDC
Price: $187.20
Fresh all-time highs reflect two flywheels: AI-driven exabyte demand and a firmer pricing backdrop in both high-capacity HDD and premium flash (HBM adjacency via packaging partners helps the narrative).
Street targets keep inching higher as mix tilts to ultra-high-capacity nearline drives and profitability broadens beyond cyclical recovery.
Risks: supply additions in NAND, a post-spike digestion phase in hyperscale, and the classic storage volatility that punishes late-cycle optimism.
Still, with cost downs sticking and capital discipline improved, incremental revenue tends to fall through.
Why it matters for you: Track nearline ASPs, wafer starts in NAND, and hyperscaler capex guides.
If pricing holds while bit shipments rise into mid-’26, earnings power is still underappreciated.
LKQ | LKQ
Price: $31.06
A 52-week low, an index removal headwind, and a value multiple, yet the core engine (aftermarket collision/mechanical parts with European exposure) remains cash-generative.
Last print beat on EPS despite a modest revenue miss, and the dividend increase underscores balance-sheet confidence.
The setup from here is blocking and tackling: procurement discipline, pricing vs. OE, and productivity as volumes normalize.
If U.S. miles driven stabilize and European operations keep improving fill-rates, margin repair can compound even without heroic growth.
Why it matters for you: Focus on organic parts & services growth, gross margin per unit, and working-capital turns.
Forced sellers from index changes can create dislocations; two clean quarters could catalyze a rerate toward historical averages.
Next Wave (Sponsored)
The next leg of AI growth is set to emerge from advanced data infrastructure, a segment gaining powerful momentum beneath the surface.
Leaders in this space are showing strong operational expansion, increasing government interest, and growing enterprise adoption.
These developments are quietly creating high-probability setups for early movers.
As demand accelerates, positioning inside this sector could produce significant compounding potential.
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Uber | UBER
Price: $85.44
Regulatory cross-currents (Europe, parts of Canada/UK regions) clipped the tape, and a modest target trim added pressure.
None of that changes the strategic arc: category leadership in Mobility and Delivery, rising advertising attach, and early autonomy pilots to bend long-run cost curves.
The model’s strength is blended take-rate expansion and capital-light growth; its vulnerability is region-by-region rules that can nick supply elasticity and promo cadence.
With unit economics healthier and GAAP profitability established, dips tend to find bids, provided bookings and margin mix keep improving.
Why it matters for you: Watch Mobility/Delivery take rates, trip growth vs. incentive intensity, and regulatory outcomes in key EU markets.
If bookings grow while incentives stay contained, earnings sensitivity improves even with headlines.
MercadoLibre | MELI
Price: $2,019.81
Shares slipped on a robotics pilot headline, but the bigger picture still revolves around a rare LATAM combo: high-growth commerce, a scaled fintech ecosystem, and logistics that increasingly resembles a moat.
Humanoid-robot pilots are about throughput and ergonomics; the investment debate is payments monetization, NPL management in credit, and margin durability as logistics densifies.
FX and competitive flare-ups add noise, yet MELI has repeatedly traded growth for share preservation, and then recaptured margin with scale.
Why it matters for you: Track take-rate trends in fintech, credit losses vs. yields, and fulfillment penetration in core markets.
If logistics efficiency gains outpace opex and credit remains controlled, operating leverage can reassert into 2026.
Oracle | ORCL
Price: $198.85
A strong top line and expanding cloud mix couldn’t drown out the thud from a steep free-cash-flow hole and heavier borrowing to fund data centers.
The stock’s after-hours slide below a key round number says sentiment flipped from tell me a story to show me payback.
The long thesis: multiyear AI capacity deals, database lock-in, and application cross-sell can convert capex into durable margins.
The near-term rub: higher interest expense, timing risk on customer ramps, and tighter tolerance for misses as macro cools.
If management tightens capital allocation, sequences builds to contracted demand, and proves cash conversion improves through 2026, the multiple can stabilize.
Why it matters for you: Watch net retention in cloud, backlog quality (prepaid vs. usage), and FCF inflection vs. debt service. Without visible FCF progress, any rallies risk fading fast.
Poll: What’s your biggest “money oops” story? |
📊 Stat of the Day: 3.5%–3.75%
The Fed’s third straight 25 bps cut puts the funds rate at a three-year low, with a 9–3 split and a higher bar for more easing.
So, duration and quality still matter. Rate-sensitives (cloud capex, autos) get modest relief, while cash-burn stories won’t get a free pass.
Watch labor data and CPI, as further cuts likely need softer jobs.
Final Take
The market remains generous to execution and ruthless to ambiguity.
Storage tied to AI plumbing keeps working; platforms with clear unit economics ride out headlines; value with cash yields gets a second look.
Ambitious capex stories must now close the loop: contract, build, convert, then prove it in free cash flow.
Best Regards,
—Noah Zelvis
Everyday Alpha