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Eagle Capital warns AI spending boosts earnings but valuations look risky
In its Q2 2026 investor letter, Eagle Capital said earnings may overstate economics because semiconductor equipment depreciation has been running over multiple years, while free cash flow growth is weaker.
Eagle Capital Management, in its second-quarter 2026 investor letter, said enthusiasm around AI capital spending has helped drive strong S&P 500 earnings growth, but it also flagged risks tied to elevated valuations, concentrated demand, and aggressive investment assumptions.
The firm said it believes current earnings can overstate underlying economics because semiconductor equipment is depreciated over several years, while free cash flow growth remains much weaker. Eagle also expects competition and added capacity across AI labs, hyperscalers, and semiconductors to ultimately produce winners and losers.
Eagle said it remains a believer in AI, but prefers building a portfolio that can perform across multiple outcomes rather than relying on a single forecast. It said that approach includes recycling capital toward opportunities outside the most crowded AI trades while keeping selective exposure to higher quality beneficiaries.
The letter discusses NVIDIA as a leading provider of data center-scale AI infrastructure, and notes the company closed on August 18, 2026 at $219.74 per share. It also cites NVIDIA’s recent performance, including a 52-week gain and a market capitalization of $5.32 trillion, while warning that major customers have internal silicon programs that could reduce NVIDIA’s share over time.
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