“We are seeing way too many business models (and valuation levels) with no realistic margin expansion story, extreme capex spend, lack of enterprise customer traction, or overdependence on “roundtrip” investments – in some cases all with the same company,” Davis wrote.
Yet, Davis argues the same exuberance driving landmark transactions at the chip level is also fueling excess elsewhere in the AI stack, particularly among third-party data-center developers betting on what he called the “build it and they will come” model.
“If you’re a hyperscaler, you will own your own data centers,” Davis wrote in the letter. “We want to back the owner-users, not the speculative landlords.”
The risk, as the venture capitalist sees it, is not that demand for AI compute disappears, but rather that capital has rushed into the wrong hands. While hyperscalers and well-capitalized tech companies can absorb massive upfront costs, speculative landlords rely on short-term financing and customers that may never materialize at scale.
Digital Realty and Equinix did not immediately respond to Fortune’s request for comment.
Yet the caution is startling coming from Davis, who said in the letter that he remains deeply bullish on AI itself. Disruptive has deployed billions of dollars across private technology companies it views as core to the AI economy, including Groq, open-source model developers, and defense-oriented software firms. Davis describes the current wave of AI innovation as a “once-in-a-lifetime” opportunity.
“While I continue to believe the ongoing advancements in AI technology present ‘once in a lifetime’ investment opportunities, I also continue to see risks and reason for caution and investment discipline,” he wrote.
