AI may live up to the technological hype while disappointing investors. Vast infrastructure spending is being financed on fixed schedules even as returns remain uncertain and hardware ages quickly.

The AI build-out has been financed with money that demands dates, and investors may see poor returns even if the technology transforms the economy.

Like the canal mania and railways boom of centuries past, artificial intelligence (AI) can transform the economy but still produce poor returns for the investors financing its build-out.

Companies may find and implement valuable uses for generative AI, but the assets supporting those uses can reach the end of their economic lives before the resulting cash flows have covered the investment, while debt service continues on fixed dates.

In other words, the case for the technology and the case for the investment are not the same.

US Securities and Exchange Commission filings show Microsoft, Alphabet, Amazon, Meta and Oracle put US$413.2 billion into capital expenditure in their latest financial years against depreciation of US$110.6 billion.

That wedge, US$302.6 billion, equals 78 per cent of their combined net income of US$389.3 billion. It runs from 42 per cent of net income at Microsoft to 281 at Oracle, now rated BBB minus, the lowest investment-grade tier. Nvidia, the vendor rather than a buyer, is the control: its wedge is 3 per cent.

A dollar of capital........

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