This AI skeptic got feedback from the industry - and now he's even more pessimistic

By Steve Goldstein

Fund manager says data center deprecation will take as little as three years

The AI data-center story is even worse than this skeptic initially imagined.

What happens when an AI skeptic gets feedback from people in the industry?

He gets even more bearish that the torrent of spending can be justified.

At least that's the case for Harris "Kuppy" Kupperman, the founder of the hedge fund Praetorian Capital, whose back-of-the-envelope math from this summer was that companies need to generate $480 billion of revenue just to meet current levels of data-center spending and upwards of $1 trillion to meet next year's spending.

That take led him down a road to talking with data-center insiders - designers, owners, lenders - and convinced him that he made a crucial mistake.

It turns out he made a mathematical error, and not in favor of the hyperscalers. He had assumed a 10-year depreciation schedule. "Based on my conversations over the past month, the physical datacenters last for three to ten years, at most," he says in a new blog post. "Changes to cooling systems, chip and racking designs, power systems, and even overall layouts, mean that the buildings themselves are likely depreciating quite rapidly as well. Then when you consider that new GPU iterations, which seem to come out every year or two, effectively obsolete prior models, you realize that I should have been using a much faster depreciation curve across the whole capitalized structure."

"As I wasn't educated on the intricacies of a datacenter, I wasn't bearish enough on the economics of an AI datacenter," he added.

On his numbers, the industry spends about $30 billion a month and receives over $1 billion in revenue. "The mismatch is astonishing, and this ignores that in 2026, hundreds of billions of additional datacenters will get built, all needing additional revenue to justify their existence," says Kupperman.

Like others, he sees risks far beyond just the investors and lenders to the industry. He estimates the actual AI buildout represents about 1.5% of GDP this year, and with multiplier effects, could reach 2% in total. When combined with the wealth effect, it's not hard to imagine that AI is responsible for all of economic growth this year, possibly even more than that if you think other parts of the economy are in recession.

"Railroads and AI are actually quite similar, they're absolutely massive capital projects, with huge financial implications for investors," says Kupperman. "Much like with railroads, if the funding for AI slows, the buildout slows. If the buildout stops, the shares of the AI beneficiaries get sold off, and the wealth effect goes in reverse. Consumption growth goes negative, and you get a financial panic that reverberates through the entire economy in a feedback loop. Except unlike railroad tracks and locomotives, which have long useful lives, AI data centers go obsolete almost immediately-they're complete write-offs. The capital destruction will be massive," he says.

Like others, Kupperman notes the circular nature of recent AI spending announcements - Nvidia (NVDA) itself is on the verge of becoming a top-10 venture capital investor - and draws parallels to when Lucent and Nortel started funding networking purchases during the dot-com boom. He was quick to add he doesn't have any evidence of illegal activity of the kind that drew Securities and Exchange Commission sanctions for both Lucent and Nortel. "Then again, something about this does seem to rhyme," says Kupperman.

The market

Showing no signs of topping, stock-market futures rose. Bitcoin pulled back after reaching over $125,000 over the weekend, while gold powered higher. The dollar rose vs. the Japanese yen.

   Key asset performance                                                Last       5d      1m      YTD      1y 
   S&P 500                                                              6715.79    1.09%   3.61%   14.18%   16.77% 
   Nasdaq Composite                                                     22,780.51  1.32%   4.98%   17.97%   25.60% 
   10-year Treasury                                                     4.164      2.00    12.10   -41.20   13.10 
   Gold                                                                 3964.8     2.64%   7.81%   50.22%   48.95% 
   Oil                                                                  62.07      -1.76%  -0.62%  -13.64%  -19.69% 
   Data: MarketWatch. Treasury yields change expressed in basis points 

Need to Know starts early and is updated until the opening bell, but sign up here to get it delivered once to your email box. The emailed version will be sent out at about 7:30 a.m. Eastern.

The buzz

OpenAI committed to buy Advanced Micro Devices (AMD) microchips and will receive warrants in the chipmaker.

After doubling in value this year, Micron Technology (MU) received an upgrade from Morgan Stanley to overweight.

Sanae Takaichi won Japan's ruling party leadership race in a surprise victory. Wall Street is wary.

Sebastian Lecornu resigned as France's prime minister less than a month into office.

Fifth Third Bancorp (FITB) said it is buying Comerica (CMA) in all-stock deal valuing the lender at $10.9 billion.

PayPal (PYPL) said it was introducing 5% cash back on buy now, pay later.

Best of the web

Are we in a recession? Yes, in one of these 22 states.

OpenAI's hunger for computer power has Sam Altman dashing around the globe.

How China secretly pays Iran for oil and avoids U.S. sanctions.

The chart

Friday came and went without the Labor Department releasing jobs data, but Revelio Labs made their estimate: it says 60,000 jobs were created last month. Its methodology relies on taking LinkedIn postings and then adjusting for workforce composition differences as well as lags, and it says the data historically correlates strongly with the establishment survey. "Together with declines in job postings, advertised salaries, hiring, and attrition, these suggest the labor market continues to slow down," said the firm's chief economist, Lisa Simon.

Top tickers

These were the most active stock-market tickers on MarketWatch as of 6 a.m. Eastern.

   Ticker  Security name 
   TSLA    Tesla 
   NVDA    Nvidia 
   PLUG    Plug Power 
   GME     GameStop 
   PLTR    Palantir Technologies 
   NIO     Nio 
   TSM     Taiwan Semiconductor Manufacturing Co. 
   AAPL    Apple 
   OPEN    Opendoor Technologies 
   AMD     Advanced Micro Devices 

Random reads

A real black-swan event had this creature evicted from Shakespeare's hometown.

Talk about golfing under pressure - this pro played a shot with an alligator 20 feet away.

-Steve Goldstein

This content was created by MarketWatch, which is operated by Dow Jones & Co. MarketWatch is published independently from Dow Jones Newswires and The Wall Street Journal.

(END) Dow Jones Newswires

10-06-25 0748ET