Artificial Intelligence: Separating Hype from Investment Reality

Beyond the Magnificent Seven

The concentration of AI-related returns in a handful of mega-cap technology stocks has been well documented. What's less appreciated is the breadth of the enabling infrastructure required to support the AI buildout — and the investment opportunities it creates.

Where the CapEx Flows

Total AI-related capital expenditure is projected to reach $350 billion in 2026, up from $180 billion in 2024. This spending flows through several layers:

• Semiconductors — GPU and custom silicon demand remains robust, though valuations are stretched
• Power infrastructure — data centres will consume an estimated 8% of U.S. electricity by 2028, up from 3% today
• Cooling systems — liquid cooling adoption is accelerating as chip power density increases
• Data centre REITs — lease rates have increased 25-30% year-over-year in key markets
• Networking equipment — high-speed interconnect demand is growing 40%+ annually

Our Portfolio Exposure

We have deliberately positioned the portfolio to benefit from AI infrastructure rather than AI applications, where outcomes remain highly uncertain. Our holdings include:

1. A leading U.S. independent power producer with gas and nuclear assets near major data centre clusters
2. A European precision cooling manufacturer with 35% market share in liquid cooling for GPU racks
3. A Japanese electronic components maker with dominant positions in high-frequency connectors

Valuation Discipline

We remain valuation-conscious even in high-growth areas. Several AI-adjacent names have reached 50-60x forward earnings, pricing in flawless execution for years ahead. We prefer companies trading at 15-25x earnings with demonstrated revenue traction and clear competitive moats.

History teaches us that transformative technologies create enormous value — but often for different companies than investors initially expect. We aim to stay invested in the structural beneficiaries while avoiding the speculative froth.