rlappreciator's Shortform

rlappreciator

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Market turmoil - seen many forecasts on this site that seem to gloss over where additional capex $ will come from, and labs hitting revenue numbers especially when best models are not released publicly. Ideally they just develop in house alternatives to everything and monetize well. But the odds of takeoff being derailed by market actors is higher than many are pricing in. Curious to hear broad thoughts.

Paradoxically, I don't think the market is very relevant actually for the size of the infrastructure buildout in AI. I do not think Google, Amazon, Meta, Microsoft are investing in AI firms for a return on investment. They are forced to invest as they face an existential threat from OpenAI and Anthropic and each other. Their safe monopoly profits are over. It's innovate in AI or die. This means 100% of their profits will continue to go into AI infrastructure until they feel like they can't die anymore. Which will only happen if all their competitors are dead, or once the entire AI sphere has settled into some monopoly-cartel esque equilibrium

If the market implodes debt may become harder or impossible to raise, but the profits of all these firms collectively is probably about a trillion dollars. So we'll be investing a trillion dollars in capex for a while.

seem to gloss over where additional capex $ will come from

At least the AI-2040 forecast didn't seem to gloss:

What the AI-2040 authors believed in Jul 2026

To make a forecast that takes this into account, we split capex projections into three sources: existing-trend hyperscaler cash flow, AI cash flow (additional compute spend from AI company revenues, approximated as 80% of frontier AI company revenue forecasts), and debt & equity raises (which we are already starting to see grow in 2025/2026).

Our projections are as follows:

Existing-trend hyperscaler cash flow to continue growing at ~20%/yr (Epoch's ~$478B → $603B, with frontier AI company revenue stripped out) and deploy a rising share of it into the buildout, an invested fraction climbing ~75 → 85% as capex consumes more of cash flow.
AI cash flow to follow a total ARR (across frontier AI companies) of $30B (start-2026) → $180B → $500B → $1T (start-2029), with 80% of the recognized revenue counted as additional compute spend.
Debt & equity raises are hand forecasted (low effort) as a declining multiple of AI revenue: 3x (2025), 2.8x (2026), 1.8x (2027), 1.6x (2028). This is highly uncertain: on the one hand AI revenue growth motivates leverage, but as the total debt raise grows the interest rate will likely get higher. Note also that leverage at these levels implicitly conditions on the scenario's fast AI progress continuing (lenders keep believing in the revenue growth); like the revenue path itself, it is an input consistent with this scenario rather than an unconditional forecast.

With 2024-25 pinned to Epoch's Broad CapEx ($260B / $448B), this carries total AI capex to ~$2.4T in 2028, with debt reaching ~$900B (38% of the 2028 buildout). (We use hyperscaler Broad CapEx as the proxy for total AI capex: hyperscalers are ~60-90% of global AI spend, and ~60-90% of their capex is AI, and we assume the two gaps roughly cancel.) This is 7% higher than the naive baseline's (extrapolating the ~1.72x/yr trend) 2028 capex of $2.28T! This is because our bullish AI revenue forecast (and the debt raises we think its fast growth will motivate) actually pulls the trend slightly upwards.

seem to gloss over where additional capex $ will come from

At least the AI-2040 forecast didn't seem to gloss:

What the AI-2040 authors believed in Jul 2026

Our projections are as follows:

Existing-trend hyperscaler cash flow to continue growing at ~20%/yr (Epoch's ~$478B → $603B, with frontier AI company revenue stripped out) and deploy a rising share of it into the buildout, an invested fraction climbing ~75 → 85% as capex consumes more of cash flow.
AI cash flow to follow a total ARR (across frontier AI companies) of $30B (start-2026) → $180B → $500B → $1T (start-2029), with 80% of the recognized revenue counted as additional compute spend.
Debt & equity raises are hand forecasted (low effort) as a declining multiple of AI revenue: 3x (2025), 2.8x (2026), 1.8x (2027), 1.6x (2028). This is highly uncertain: on the one hand AI revenue growth motivates leverage, but as the total debt raise grows the interest rate will likely get higher. Note also that leverage at these levels implicitly conditions on the scenario's fast AI progress continuing (lenders keep believing in the revenue growth); like the revenue path itself, it is an input consistent with this scenario rather than an unconditional forecast.