Perspectives: Episode 133 – Who's Paying for AI?

In this episode of Perspectives, Escala Chief Investment Officer, Tracey McNaughton, discusses just how large the AI capital expenditure budgets have become, where the money is coming from, and which parts of the AI supply chain are most at risk of overinvestment. (0:51) It feels as though every major technology company is announcing another massive increase in AI investment. Just how big has this AI spending boom become? (2:00) What's interesting, though, is that the spending doesn't seem to be slowing. If anything, every earnings season the budgets seem to get bigger. (4:10) Microsoft seems to have convinced the market that the investment is paying off. Was that true for everyone? (5:58) For Alphabet and Meta, investors are still asking, "Show me how this next wave of spending turns into future earnings." (6:57) If the hyperscalers are collectively spending more than US$400 billion this year, where is all that money actually coming from? (8:38) Where does that capital come from? (10:47) AI has become one of the world's largest consumers of investment capital. The unfortunate thing is this is happening at the same time as bond yields are hitting multi-decade highs. (12:12) So, Tracey, whenever we see an investment boom of this magnitude, history tells us that eventually somebody builds too much. Is AI heading down the same path? (12:49) Let's work through the supply chain. Where do you think the risks are highest? (13:54) What about data centres – surely that's where everyone's worried about a bubble? (14:41) What about the companies actually making the equipment? (16:01) So, not all parts of the AI supply chain should be treated the same – particularly when we are talking about capex?