7/28/2026
The $2 Trillion AI Revenue Gap: Is Corporate Spending Outpacing Reality?
Happy Tuesday!
In this week’s letters,
– Warden Capital on AI and market adoption
– Olesen Value Fund on the UK homebuilders
– Legacy Ridge Capital on US energy
– Elevator pitches for SHC, RBREW DC, and CPB
Quarter in progress: 401 fund letters of 2026 Q2 are live on our database!
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Q2 2026 INVESTOR LETTER SUMMARIES
- The AI boom is less binary, which leaves more room for debate. I believe the AI sector is becoming overheated, and as investment continues to scale, I am increasingly concerned that the eventual downturn could be severe enough to trigger a broader economic slowdown.
- What is striking is that many forecasts still assume AI capital expenditure will increase significantly in 2027, with some estimates suggesting that annual spending could approach $2 trillion by 2030. As capital expenditure rises, the amount of revenue required to justify that investment must also increase.
- The adoption of AI across corporate America has been remarkable. I do not believe any previous technology has spread this quickly. Surveys from McKinsey and BCG illustrate the scale of that adoption. McKinsey estimated that, in 2025, 88% of surveyed employees said their companies were using AI. In a June 2025 survey, BCG found that 72% of respondents, all of whom were corporate employees, described themselves as regular AI users.
- UK Homebuilders Recover Only Modestly, but the Market Is Missing the Bigger Picture. I continue to believe that investors are overly focused on short-term developments and are missing the bigger picture. These companies satisfy a basic need—housing—that is unlikely ever to disappear.
- Although the industry is highly cyclical, these businesses have generated solid returns on shareholders’ capital across multiple industry cycles. Industry consolidation, changes in the land market, reduced competition, more disciplined behavior, the increased use of land options, and signs of improvement in the residential planning and permitting process all suggest that the industry’s underlying economics remain intact and may even have improved in certain respects.
- Technological and other structural changes have only limited potential to disrupt the business model. Moreover, our portfolio companies in this industry have remained at the forefront of developments in construction methods and operating efficiency, including modularization, the use of new materials, greater vertical integration, and improvements in energy efficiency. These changes continue to occur gradually rather than disruptively.
- The most obvious beneficiaries of energy instability are the partnership’s positions in U.S. energy companies, including pipeline operators, royalty businesses, and oil and gas producers. U.S. exports of hydrocarbon products are at record levels. These exports are not limited to crude oil but also include propane, natural gas, ethane, butane, naphtha, propylene, ethylene, diesel, jet fuel, and gasoline. Put simply, if a product comes out of the ground or is derived from something that does, the United States exports it.
- It is not surprising that U.S. companies quickly increased exports to fill as much as possible of the supply shortfall created by the closure of the Strait of Hormuz. However, we believe this dynamic is likely to persist for the foreseeable future.
- Natural gas producer EQT provided additional context on the implications for the global LNG market. The company estimates that the market shifted from a deficit of 0.5 Bcf per day before the conflict began to a deficit of 3.5 Bcf per day for 2026, based on conditions at the end of April. More importantly, the market’s projected surplus of approximately 1.5 Bcf per day in both 2027 and 2028 has now shifted to a slight deficit.
ELEVATOR PITCHES BY FUNDS
Sotera Health (by O’Keefe Stevens Advisory)
- The business is exceptional: a sterilization duopoly with Sterigenics and Steris combined controlling an estimated 70% of the sterilization market. Sotera’s Sterigenics business boasts 50% EBITDA margins, mission-critical regulated services, and cobalt-60 production that is nearly impossible to replicate.
- Yet we never bought it because of one thing: Warburg Pincus held a material stake and was consistently selling into the market.
- In early 2026, Warburg sold its last share. Combined with a valuation that was cheap given the quality of the business model, we thought it made sense to purchase the stock.
Royal Unibrew A/S (by Langdon)
- During the quarter, the company announced that its Pepsi bottling and distribution agreement across Denmark, Finland and the Baltic markets will expire at the end of 2028. Unlike the examples above, this was not a temporary shift in investor sentiment.
- We believe the initial market reaction may have overlooked several offsetting structural strengths: Royal Unibrew retains a dominant portfolio of established, highly profitable local brands. Management has more than two years to optimize its manufacturing footprint, reduce its cost base, and reallocate capital before the Pepsi agreement formally expires.
The Campbell’s Company (by Brandes Small Cap)
- The company holds number one or number two market positions in most of its categories, and its portfolio has evolved well beyond its legacy soup identity through such acquisitions as Snyder’s-Lance and Sovos Brands.
- While its core categories are mature, they remain relatively defensive, with below-average and broadly stable private-label penetration, strong brand recognition and exposure to at-home eating occasions where convenience, value and perceived health remain relevant.
- At its current price, Campbell’s valuation appears attractive to us on a conservative intrinsic value estimate.
HIGHLIGHT OF THIS WEEK
MEDIA APPEARANCES BY BSDs
The Mag 7’s reign is ending. Fund manager says that means trouble for S&P 500
- A chorus of market commentators have proclaimed the Magnificent Seven cohort is dead, and Bill Smead is joining in on the funeral dirge.
- In an interview with Business Insider on Tuesday, Smead — who manages the Smead Value Fund (SMVLX), which Morningstar data shows has beaten 98% of similar funds over the last 15 years — said that the Mag 7 stocks are now on their way out of the top positions in the market.
John Paulson says we are in the early stages of a long-term bull market for gold
- John Paulson, the hedge fund manager who made billions betting against the U.S. housing market before turning bullish on gold, said he believes the precious metal is only in the early stages of a long-term rally.
- “I do think we’re in the beginnings or the early stages of a long-term bull market for gold,” Paulson said on CNBC’s “The Exchange” Wednesday. “As people lose faith in paper currencies, gold as an alternative will continue to grow.”
Ray Dalio Says ‘Final Battle’ At the Strait of Hormuz Is Here
- It All Comes Down to the Strait of Hormuz: the Final Battle. When the war started in March, I shared this article explaining what was clear to me and what would likely happen. Now it is clear that it is happening and we will soon have the final battle and its result.
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