Caledon Investment Partners - Hyperscaler Capex is Hitting Physical Limits

I spoke with Brian Mushonga and Will Thrower, two members of the three-person team at Caledon Investment Partners, about a recent memo they published titled ‘Hyperscaler Capex is Hitting Its Physical Limits’. This is the fourth time I’ve had Brian and Will on the podcast, and the memo was a great excuse to catch up on their thinking and to hear where they’re spending time.

Their core argument is that the biggest constraint on the AI buildout is no longer software or even chips alone, but energy infrastructure. As demand for compute explodes, hyperscalers are running into hard bottlenecks in power generation, grid capacity, transformers, turbines, cooling systems, permitting, and skilled labour. Brian and Will explain why these constraints may prove more durable than many investors expect, and why the picks-and-shovels businesses exposed to them could continue to benefit even if the market starts to worry about cyclicality or overinvestment.

We also discuss whether computing has entered a more asset-intensive era, how sustainable the current capex cycle really is, and what the strongest bear arguments against the AI boom get right and wrong. Along the way, we explore why Caledon prefers owning the bottlenecks around the hyperscalers rather than the hyperscalers themselves, how China’s electrification journey compares with America’s, and why efficiency gains in AI may increase demand rather than reduce it. The conversation concludes with a look at Caledon’s research process, which is built around mapping value chains end-to-end to identify the scarce assets that matter most.

As always, this conversation is for general discussion only, not investment advice.