Where’s the Cash? (September 2026)

At a Glance

The report opens by highlighting a core contradiction: the current AI infrastructure investment boom is not driven by real cash but relies on financial engineering tools such as options and vendor notes. The author cites historical precedents from past technological revolutions (railroads in the 1840s, the TMT bubble in the 1990s), noting that "today's AI infrastructure buildout depends less on hard-earned cash than on promises, options and vendor paper..." The realization of these instruments hinges on an uncertain future. Meanwhile, European small- and mid-cap companies, which generate real cash flow and return capital to shareholders, are being taken private with cash. The author argues that investors are drawn to a "cashless AI society and future promises," but the ultimate question is "where real future returns are most likely to be generated."

Position Moves

Using Iren as an example, the report dissects the circular nature and high risk of the "cashless" financing model in AI investments. Iren, an Australian AI cloud infrastructure company, raised $19 billion through convertible bonds and chip-backed debt, signing a five-year, $3.4 billion contract with Nvidia. As part of the deal, Nvidia obtained the right to acquire $2.1 billion worth of Iren shares at $70 per share. The author points out that what is being exchanged here is primarily not cash but an option; not a settled transaction but a five-year framework; not realized revenue but an unearned contract backlog. Despite Iren's stock rising 27% on the announcement day, JPMorgan questioned the circularity of the deal, as Nvidia will use the capacity for its own internal needs. Iren still plans to invest $30 billion in AI infrastructure over the next 12 months. Its CEO claims "each unit of supply generates multiple units of demand," but the author believes this requires converting the contract backlog into utilized capacity, then into revenue, and finally into returns that significantly exceed costs—all before the hardware becomes obsolete. Citing a previous article, the report emphasizes that ultimately, a profitable business model capable of generating sufficient cash flow is needed, and growth alone does not guarantee this.

Investment Implications

The report shifts focus to Europe, listing several small- and mid-cap companies being acquired with cash by private equity, demonstrating that their intrinsic value is severely undervalued by the public market. These companies include:

• Intertek: A UK testing and certification group. After a profit warning, its stock fell to £35.82, before being acquired by private equity firm EQT at £60 per share in cash, a 67.5% premium. The author believes its fair value exceeds £60.
• DCC: An Irish energy distributor. After receiving a cash-plus-dividend offer of £65.25 per share from KKR and Energy Capital Partners, the board unanimously recommended it. The author notes its free cash flow yield exceeds 8% and it still has growth plans, leading Marathon to publicly oppose the acquisition. DCC's CEO complained that despite contacting 340 institutional investors over a year, it failed to attract meaningful new demand.
• Irish Continental: A ferry operator. Its CEO (an insider) proposed a cash acquisition at €8 per share, a valuation multiple below the 2018 peak. The CEO claimed no new long-term investors had joined the shareholder register in five years. The author rejected the offer, arguing that "just because a stock is out of favor now doesn't mean it will be forever," but other shareholders narrowly voted to accept it.
• easyJet: A UK low-cost airline. After multiple headwinds, its stock fell to £3.94. Aircraft leasing specialist Castlelake and private equity giant Apollo successively launched cash acquisition offers, with Apollo eventually bidding £7.15 per share, an 81% premium over the undisturbed price.

Investment Implications

The core investment implication of the report is a significant "asymmetry" in the current market. On one side, AI companies with negative free cash flow (e.g., Iren) command high valuations based on future promises and circular transactions; on the other, European small- and mid-cap companies generating real cash flow are being acquired at low prices with cash due to a lack of investor interest. The author concludes that the AI frenzy must eventually be settled in cash (not promises), at which point its value will face a test. For investors, focusing on the age-old question of "where is the cash" (especially cash beyond insiders' bank accounts) is particularly important in the current environment. (Institutional bias note: As a value investor, the author's portfolio likely concentrates on undervalued European small- and mid-cap companies, hence the critical stance toward the AI boom and the tendency to emphasize the rationale for their holdings.)

Position Moves