Soundings

AI is incredibly needy. In a July research note, Moody’s warned the shift from asset-light to asset-heavy business models requires “unprecedented levels of investment and capital raising.” The numbers agree: six major hyperscalers are projected to approach $1 trillion in capital spending in 2027. Goldman Sachs, meanwhile, puts cumulative spending on compute, data centers, and power from 2026 through 2031 at $7.6 trillion in its baseline scenario. 

In order to meet AI’s seemingly insatiable demand, trillion-dollar companies with once pristine balance sheets that historically minted and hoarded cash are now raising equity, reporting net negative cash flows, and issuing record levels of debt (with increased rates of interest). To date, lenders have gained comfort with the large contractual agreements that provide some visibility into staggering AI growth and demand. As the financing needs continue to grow, so do the risks. 

The physical world is proving less accommodating than the capital markets. Oracle has warned of possible delays at Project Jupiter in New Mexico because of regulatory holdups affecting its power supply. Elsewhere, projects face zoning fights, grid constraints, environmental reviews, and increasingly organized opposition. Lewiston, Maine, unanimously rejected a $300 million proposal after residents packed City Hall. Denver’s mayor announced a 12-month moratorium on new data centers in May 2026. New York has paused certain permits for large facilities, and more than 230 environmental groups have called for a national moratorium. Data centers have been front and center in the mid-term political discourse as voters connect the facilities to higher electricity prices at a moment when cost of living is a marquee political issue. Data centers need a long chain of approvals. Opponents only need to break one link. 

The interconnected nature of this ecosystem is coming into focus as AI labs move towards public listings. Anthropic’s confidential prospectus reportedly outlines at least $518 billion of infrastructure spending over the next decade, about 80% of it noncancelable or subject to minimum payments. Its SpaceX agreements could reach $84.5 billion through 2029, although most can be canceled with 90 days’ notice. We also learned that 25% of Anthropic’s revenues are concentrated with two companies who are not locked into long-term contracts. In short, there’s a lot of money resting on a surprisingly short leash. 

Moving from execution risk to existential risk, there’s an active debate regarding “pacing the frontier” as AI models move towards greater functionality, including automation of their own development. Anthropic, OpenAI, SpaceX and Google have expressed support for a coordinated slowdown to address emerging risks.  

The AI trade now runs through public and private equity, investment-grade and high-yield debt, private credit, real estate, and infrastructure. At this scale, it is no longer just a sector bet. The AI build out is influencing GDP growth, inflation, and perhaps long-term interest rates (see Calling a Spade a Spade). Capping exposure sounds sensible until you realize the trade is no longer a sector. It’s the backdrop.

Tide Cycle Resources (Tide Cycle) is an investment advisor registered with the U.S. Securities and Exchange Commission. Registration does not imply a certain level of skill or training. A copy of Tide Cycle’s Forms ADV Part 2 and Form CRS are available without charge upon request. The opinions expressed are those of Tide Cycle. The opinions referenced are as of the date of publication and are subject to change due to changes in the market or economic conditions and may not necessarily come to pass. Forward-looking statements cannot be guaranteed. Nothing contained in this document may be relied upon as a guarantee, promise, assurance, or representation as to the future. This should not be taken as specific investment advice. We recommend consulting an investment/tax professional before making financial decisions based on any information provided.

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