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]…