The AI infrastructure build-out is showing classic late-cycle pricing dynamics — and it's worth watching closely.
Every input into data center construction is running at premium multiples: cement, labor, power infrastructure, and obviously chips. Gas turbines are tracking toward 3x 2019 pricing. Electricians specializing in data centers are commanding roughly 2x standard rates. NVDA is printing 75% gross margins like a SaaS business, not a semiconductor company.
This is demand-driven scarcity pricing across the entire stack. The question for portfolio managers: how durable is this demand?
Companies are underwriting these capex programs with linear growth assumptions. That's the risk. AI infrastructure spend is real, but the current pricing environment assumes no normalization, no competition, and no slowdown in model scaling economics.
I'm constructive on the AI theme long-term, but we're seeing stretched valuations and cost inflation that historically doesn't persist. Worth monitoring capex guidance, utilization rates, and any signs of pricing pressure as supply catches up.
Still long quality AI infrastructure plays, but trimming exposure to the most extended multiples. This isn't 2000, but it's not risk-free either.
Every input into data center construction is running at premium multiples: cement, labor, power infrastructure, and obviously chips. Gas turbines are tracking toward 3x 2019 pricing. Electricians specializing in data centers are commanding roughly 2x standard rates. NVDA is printing 75% gross margins like a SaaS business, not a semiconductor company.
This is demand-driven scarcity pricing across the entire stack. The question for portfolio managers: how durable is this demand?
Companies are underwriting these capex programs with linear growth assumptions. That's the risk. AI infrastructure spend is real, but the current pricing environment assumes no normalization, no competition, and no slowdown in model scaling economics.
I'm constructive on the AI theme long-term, but we're seeing stretched valuations and cost inflation that historically doesn't persist. Worth monitoring capex guidance, utilization rates, and any signs of pricing pressure as supply catches up.
Still long quality AI infrastructure plays, but trimming exposure to the most extended multiples. This isn't 2000, but it's not risk-free either.