If…Not…When

In my opinion, the current AI repricing of public companies is a process of asking “if” any future cash flows are safe. We used to debate “when” those cash flows would degrade - in 10 years? 20 years?

Now the question is if these future revenues and RPO have ANY value.

When you start to ask “if” questions about a company’s future, the safest thing to do is to re-rate their P/Es, rev multiple and WACCs to such a small number that it embeds the holder with a massive margin is safety.

This phase shift is very important and is what is currently happening.

The downside of this repricing is that companies that are directly in the bullseye of the repricing could see valuations that approach 1-3x free cash flow.

This will then dramatically change how these companies will deal with Stock Based Comp (they will drastically cut it) because it has a huge impact to cashflow. This will then impact their employee retention and subsequent growth, revenues and profits. So it’s a reflexive loop.

Expect more downward pressure.

Watching the spread between the equal weight S&P index and the index itself is probably the simplest way to measure the degree of the repricing.

Good luck to all the players!