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The massive investment in artificial intelligence (AI) is shifting market leadership towards hardware, infrastructure and other capital-intensive businesses, as rising spending on AI infrastructure continues to drive demand beyond the technology sector, according to a report by venture capital firm Andreessen Horowitz (A16Z).
The report said the shift marks a change after more than a decade of dominance by software and other capital-light businesses. AI infrastructure spending has triggered a multi-trillion-dollar capital expenditure cycle, driving strong demand for GPUs, high-bandwidth memory, power equipment, skilled workers and copper. In several areas, demand is outpacing available supply. Weve entered a new cycle of real assets, and while tech is running through all of it, capital-light bits is no longer the (only) name of the game. Another Age of Atoms has arrived, the report said. According to the report, the change is already visible in financial markets, with capital-intensive businesses gaining ground as some of the world's largest technology companies increasingly invest their profits in hardware and AI infrastructure. The AI supply chain, including chipmakers, optical interconnect providers, turbine suppliers and liquid cooling companies, has emerged as a key beneficiary of the investment cycle, the report said. A16Z expects the investment cycle to remain strong. It said spending by major cloud companies, or hyperscalers, has so far been funded largely through their profits. However, this has led to a significant decline in free cash flow, which the firm expects could continue until around 2028. The investment opportunity is also expanding beyond AI infrastructure. Electric vehicles, solar power, defence, robotics and efforts to rebuild industrial capacity are contributing to a broader shift towards physical assets. The report estimated that around USD 90 trillion in investment would be required globally by 2040 to meet infrastructure and industrial needs. For the AI supply chain, A16Z said there are currently few signs of a slowdown in capital spending. Capex shows no indication of a slowdown any time soon, and if demand for intelligence is indeed infinite, then this cycle may not be like the other cycles, the report said. At the same time, supply constraints remain a challenge, with components beyond GPUs facing unusually long delivery times. The firm said these supply pressures could keep AI infrastructure and industrial capacity at the centre of the investment cycle as demand for AI continues to grow. (ANI)
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