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Eagle Capital’s Q2 letter flags AI spending tailwinds and valuation risks
The firm said it sees potential for earnings to overstate underlying economics as semiconductor equipment depreciation runs over several years, while free cash flow growth has been weaker.
Eagle Capital Management released its second-quarter 2026 investor letter, arguing that enthusiasm around AI capital spending has supported strong S&P 500 earnings growth, even as it raises risks tied to elevated valuations and concentrated demand.
In the letter, Eagle said current earnings may overstate underlying economics because semiconductor equipment is depreciated over multiple years, while free cash flow growth remains much weaker.
The firm also highlighted uncertainty from aggressive investment assumptions and expectations that competition and additional capacity among AI labs, hyperscalers, and semiconductors will eventually produce winners and losers.
Eagle said it is recycling capital toward what it sees as more attractive opportunities outside the most crowded AI trades, while keeping selective exposure to high-quality beneficiaries, noting its portfolio trades at a 20% market discount with faster expected EPS growth, and pointing to holdings including Taiwan Semiconductor Manufacturing Company and ASML as well as three hyperscalers.
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