Webinar
Replay: Why the Next Phase of AI Capex May Reward the Physical Economy
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Key Takeaways
The scale is unprecedented
AI spending from hyperscalers is forecast to approach $1 trillion annually, with roughly half flowing outside of compute into the physical economy — power, cooling, construction, and labor.
Source: Barclays Americas Tactical Playbook, 4Q25: Riding the AI Wave (December 2025).
SMID companies are cashing the checks
As mega-cap tech writes the checks, small and mid-cap suppliers of power, switchgear, cooling, and construction benefit with greater equity sensitivity. A billion dollars of new revenue does more for a small-cap stock than for a mega-cap.
We are early in the adoption curve
We believe evidence suggests the binding constraints are increasingly physical and local — power and grid interconnection, skilled labor, and electrical/thermal systems — which may create a multi-year capacity shortage rather than a near-term overbuild.
Lower AI costs drive more demand, not less
In our view, the same $1 billion of incremental AI revenue may be negligible for a mega-cap company, but potentially transformational for a SMID company.
"U.S. small cap investing is the most innovative, the most dynamic universe available in the capital markets around the globe… we think that the pace of innovation is actually accelerating now, largely as a function of this AI phenomenon."
Topics discussed
Drew and Simon cover the full landscape of AI-driven infrastructure investment, from the macro picture to specific portfolio examples.
The AI capex arms race
How Microsoft, Google, Amazon, Oracle, and Meta have shifted from capital-light digital scale to capital-intensive infrastructure builders — and why the numbers keep getting bigger each quarter.
Navigating market volatility
How the 5Perspectives Growth Team applied its three-discipline process — fundamental, thematic, and technical analysis — to navigate the mid-year correction and identify opportunities in the aftermath.
Electrification and power themes
From nuclear energy and aeroderivative turbines to switchgear and fuel cells — the many sub-themes within the power opportunity as data centers create unprecedented demand for electricity.
The agentic economy
How AI agents are creating new demand patterns, with companies like DigitalOcean accelerating from 14% to 29% annual revenue growth over recent quarters as AI-native startups and agent deployments drive usage.
Open vs. closed models
Open models will likely lead to more usage, more demand for tokens, and therefore potentially more compute, not less.
The case for SMID equities
Small and mid-cap ETFs are at their lowest percentage of total equity ETF assets in 25 years, and SMID trades at a discount to large-cap on price-to-sales. The setup is compelling for active managers with a disciplined process.1
1As of June 2026. Source: Bloomberg.
Speakers
Questions from the webinar
Selected questions addressed during the live Q&A session.
In Drew's view, it is difficult to envision a regulatory framework that would fundamentally undercut demand for AI capability, though regulatory outcomes remain inherently uncertain.
The team evaluates the competitive advantage a company has created relative to the market opportunity, then models the likely revenue trajectory and future profitability. Revenue multiples and franchise value assessments supplement traditional PE analysis. As Drew explains: "There is a lot of capital appreciation that occurs between an IPO and profitability — and we want to participate in that."
The team finds opportunities in space, military technology, transportation (including air taxis), and individual company stories unrelated to AI. Examples discussed include Cheesecake Factory's fast-growing Flower Child concept and Sphere Entertainment's franchise expansion model — demonstrating that we believe innovation and opportunity extend well beyond technology.
We believe users will increasingly move toward a mixed usage of frontier and open models, with routers automatically selecting the right model for each task. In our view, the average cost per unit of intelligence is likely to drop significantly — but we expect lower cost to drive dramatically more usage. Even open model tokens require the same compute infrastructure. The net result, as we see it: more demand for data centers, not less.
Capital Expenditure ("CapEx"): Funds used by a company to acquire, upgrade, or maintain physical assets such as property, buildings, technology, or equipment. CapEx is often used to undertake new projects or investments by a company and is typically reflected on the balance sheet as an asset rather than expensed on the income statement.
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