Barclays analysts remain constructive on artificial intelligence (AI) as an investment theme but cautioned on downside potential related to data center capital expenditures (capex).
In a note to clients published on Thursday, the analysts point to the possibility of factors such as power constraints and funding needs outpacing cash generation that could lead to a supply mismatch to Wall Street’s aggressive demand assumptions, given the speed and magnitude of the AI build-out.
“The lingering fear, then as now, is whether AI is due its 'dark fiber' moment, in which exponential efficiencies lead to critical underutilization of infrastructure assets," the analysts wrote.
They are referring to the dotcom bubble in the late 1990s, when return on investment was eventually realized on the data centers and fiber-optic networks constructed at the time, but it arrived too late to benefit the companies that built them.
The analysts, however, added that hyperscaler capex is ramping aggressively but remains about 25% of sales, relatively prudent when measured against the excesses during the dotcom bubble, when capex for the major telcos of the time surged beyond 40% of sales.