Building Yield While the AI Bubble Inflates
Reading GQG’s latest note (I am a big fan of their analysis), I’m struck by how familiar the story feels. The AI boom has all the hallmarks of late-cycle froth: slowing revenue growth, rising competition, capital intensity spiking, and valuations stretched to levels we last saw in 1999. That doesn’t mean these aren’t great businesses—it means they’re priced in ways that make compounding fragile.
For the Predictable Yield Engine, this is a reminder of why we don’t build our foundation on hype. Our 14% IRR target, with at least 8% from dividends, relies on assets where cash flow covers the payout. Big Tech today fails that test: free cash flow is deteriorating while capex balloons. If that unwind comes, it won’t just hurt tech—it could rattle broader markets.
What do we do about it? We double down on what we know works. BDCs with strong spillover and low non-accruals. CLO funds and multi-sector CEFs trading at real discounts with NAV total return covering distributions. Preferreds and hybrids where the coupon is contractually locked in. These are the engines that will keep paying through cycles and let us reinvest at better prices when volatility hits.
PYE’s edge is simple: compounding yield while others chase bubbles.
If PYE helps you see yield and compounding in a clearer light, consider supporting the project. Every subscription fuels the time I spend running reinvestment models, tracking portfolio income, and translating what I learn into posts we can all build from.
Disclaimer
The analysis and commentary shared here reflect my own research and investment approach. This content is provided for informational and educational purposes only and should not be considered financial advice, a recommendation to buy or sell any security, or an endorsement of any particular strategy. Nothing here is tailored to the investment needs or circumstances of any individual. Charts, graphs, or figures are illustrative only and should not be relied upon as the basis for investment decisions. Please consult a qualified financial advisor before making investment choices that may affect your personal financial situation.