01
The Data Center Dustbowl
The year is 2028. Outside Abilene, Texas, the first families move into a converted data center — a powered shell built for GPUs that never ran above half capacity, now a monument to the capex boom of 2024–2027.
A thought experiment on where the AI capex boom runs into trouble: trillions of dollars of leverage layered onto a nascent technology with an unclear long-run economic profile — and the path from a warehouse in Texas to the retirement accounts of average Americans.
02
The Financing Engine
When the buildout outgrew hyperscaler balance sheets, a frankenstein of leveraged GPUs replaced it: private-credit SPVs, residual value guarantees, and backstopped leases parked just off the books.
03
The Collateral
Everything rested on chips holding value across a five-to-six year depreciation curve, while a new flagship shipped roughly every twelve months.
04
Nothing New Under the Sun
In the 1970s, a Lloyd's obsolescence policy unlocked hundreds of millions of computer-leasing debt — until IBM announced the 4300 series. The financing mechanism is always the key variable.
05
The Life Insurers
The senior slices needed a buyer built to hold long-dated paper and never mark it to market. Annuity balance sheets became the resting place for the AI credit complex.
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Disclaimers and disclosure
First off, I am no luddite. I use AI as part of my research process, as well as to assist with writing and editing. The image in the header was generated using Grok. I am very in favor of technological progress. This piece is a thought experiment on where the AI Capex boom may run into challenges ahead. I am optimistic on the prospects for AI over the coming decades, but fear too much may have been bet on large incremental progress which may prove elusive in the short-run. My principal concern is that too much of the American economy has been leveraged based on a nascent technology with unclear long-run economics, and that this may ultimately harm the main street economy and the average citizen via the stock market and possibly issues at large financial services firms. As of this writing, I am short Blackstone (BX) and SharonAI (SHAZ) via puts. I intend to continuously transact in these securities based on my investment objectives and risk management principles. Any changes to my positioning do not necessarily reflect a change in our thoughts laid out herein.
This communication contains our current views. Our views are based on our own analysis of publicly available information and assumptions we believe to be reasonable. There can be no assurance that the information we considered and analyzed is accurate or complete. Similarly, there can be no assurance that our assumptions are correct. Our views and our holdings could change at any time. We may sell any or all of our holdings or increase our holdings by purchasing additional securities. We may take any of these or other actions without updating this communication or providing any notice whatsoever of any such changes (except as otherwise required by law). Nothing here is investment advice.