Azeem Azhar

When we look at artificial intelligence in 2025, we're going to see about $400 billion go into build-out data centers.

Not all of that is in the US, but roughly speaking, given the majority is, that's about 1% of US GDP.

And it seems to be rising.

Maybe it'll get towards 1.5% by 2030.

Now, hardware like GPUs doesn't have the same lifespan as iron rails on a railway.

They depreciate over six years.

They can get used in their really high intensity uses for about three years before they have to do gentler tasks, shall we say.

At the same time, American GDP growth is becoming noticeably dependent on these investments in data centers.

So where does this gauge lie?

My verdict is that it's on the boundary of green and amber.

Probably just into the amber, but if you squint, you might be able to argue that it's a green.

Monetization level is an important gauge.

It's the ratio of Gen AI revenues relative to the capital deployed that year to build out the infrastructure.

It matters because investment must start to earn its keep.

And if coverage is persistently low, this could signal rising fragility.

In the case of the railways, their revenues covered about two thirds of the annual investment at peak.

In the case of the telecoms bubble about 25 years ago, new revenues covered around a quarter, maybe a bit less.

But both of these strained as growth slowed.

If we look at Gen AI today, we think that about $60 billion will be spent on it in 2025.

Compared to that $400 billion of CapEx, that gives us coverage maybe around 15%, maybe a little less, maybe a little bit more.