8/26/2026
The Rapid Depreciation Trap: Why AI Capex Isn't Like the 1800s Railroad Buildout
Happy Tuesday!
In this week’s letters,
– Saga Partners on what causes progress and the company’s defensiveness
– Nightview Capital on optimism of AI and its survivors
– Kayne Anderson Rudnick on AI Capex and its historical lessons
– Elevator pitches for FOUR, THX CN, and CMCX LN
Quarter in progress: 712 fund letters of 2026 Q2 are live on our database!
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Q2 2026 INVESTOR LETTER SUMMARIES
- For as long as I can remember, I have been curious about what causes progress. In school, I learned about the American colonies and wondered how that world became the one we live in today, with skyscrapers, computers, and spaceships that can land on the Moon. Yet for most of human history, progress was extremely slow.
- It is remarkable that America has existed as an independent country for only about three long human lifetimes. Someone living at the time of the founding could not have imagined the wealth and capabilities available to the average American today. In many areas of material life, that person had more in common with someone living in ancient Rome than with a modern American.
- Creating value for customers does not guarantee that a company can capture enough of it to earn attractive returns on capital. Airlines transformed travel, but broadly similar services leave little room for differentiation and make price competition intense. High returns attract capital and invite attempts to develop competing solutions. Sustaining attractive returns over time requires a moat: an advantage that makes a company’s solution difficult to copy or replace.
- We are optimists about AI for the same reason we are optimists about most powerful tools. Given enough time, people use them to make more, do more, and, eventually, build more. Artificial intelligence is already being woven into the fabric of how organizations operate. In a previous letter, we compared it to electricity. It will find its way into nearly every industry and nearly every life. The internet did the same thing about thirty years ago. It made the economy larger, and almost everyone’s slice grew along with it.
- Beginning early this year, the market staged one of the fastest repricings of an entire sector we have seen in some time. Software stocks shed enormous value in a matter of weeks. The theory driving the selling was simple and, on its surface, frightening. If AI agents can do the work that software used to charge you per user to do, then the per-seat subscription model that built the industry is finished. Enterprises will build their own tools, and nobody will pay for licenses. The moats will drain overnight. That was the theory, at least.
- Here is the heart of it: we believe the best software businesses are potentially among the most resilient assets you can own in an AI world, and we believe this for four concrete reasons.
- History is pretty clear on one point—we have never had a major CAPEX investment cycle that avoided a bubble. Almost all large CAPEX cycles, like the railroad build-out or the telecom boom of the 1990s, eventually delivered enormous economic prosperity. But the early investors were rarely the long-term beneficiaries.
- The AI CAPEX cycle is a bit different from other CAPEX cycles in terms of the life of the underlying assets. The biggest line item in today’s spend is the compute semiconductors, and these depreciate much faster than a mile of railroad track. That has some implications for this cycle.
- To be clear, we are not AI skeptics. It is a near certainty this technology will fundamentally reshape many aspects of all our lives. But the combination of a CAPEX cycle concentrated in depreciating assets and growing questions about the costs of these frontier models, as well as the challenges of hallucinations, leads us to believe we have a ways to go before we know how this technology will evolve.
ELEVATOR PITCHES BY FUNDS
Shift4 Payments (by Emeth Value Capital)
- Shift4 owns the second-largest restaurant POS platform in the United States, behind only Toast. In addition, at least one of its products is used by forty percent of U.S. hotels and the company processes payments for more than seventy-five percent of professional sports venues.
- Since IPO, Shift4 has increased its EBITDA more than fourteenfold, from $85 million to now on a trajectory of $1.2 billion in 2026.
- Considering the base case scenario which has embedded assumptions at a substantial discount to Shift4’s historical execution standards, and results in a share price of $127.37 per share, or 162% upside to intrinsic value.
Thor Explorations(by Van Der Mandele Arar)
- Last Investor’s Letter we explained why political developments in Senegal made us vigilant.
- Fortunately, recent permitting developments in Senegal for competitors has shown the local government remains constructive and forthcoming in providing permits, which is a big relief for our Thor
- Explorations investment: Not having to fear delays means Thor will have an easier time doubling production in the next three years, before the open-pit part of their mine in Nigeria depletes. That said, we continue to rely on gold going up in the short run.
CMC Markets PLC (by Kernow Asset Management)
- CMC Markets first caught our eye with the rather audacious decision not to trade against its more situationally aware clients.
- What is really exquisite is that we are transforming from a retail online trading platform into a high growth fintech business. I am not selling. I am in the office every day at 7am. There is no debt. The upside is huge. We are constantly releasing new products and have big plans for next year.
- Nature rewards the behaviour optimism produces. Monkeys worked this out some time ago. When the bananas start running out, many monkeys stay in the tree.
HIGHLIGHT OF THIS WEEK
MEDIA APPEARANCES BY BSDs
Dalio Says Sell Bonds, Buy Gold, Bitcoin as Debt Crisis Looms
- Billionaire Ray Dalio said investors should reduce their bond holdings and put as much as 15% of their money in gold to hedge against the risk of a US debt crisis that he warns could be just three years away.
- In a LinkedIn post Friday, the Bridgewater Associates founder said investors should diversify across assets and countries with strong finances.
Burry Says He Sold Alibaba, Calling It Pricey Before Share Sale
- Michael Burry criticized Alibaba Group Holding Ltd. shares as overvalued and disclosed that he recently exited his position in the Chinese tech giant in order to build a “large” position in rival online retailer JD.com Inc.
- “I planned to move most of it back after a month or two. No longer,” Burry said in a post on Substack, adding that Alibaba’s share price would have to “fall by half for me to get interested again.”
Ken Griffin’s Citadel sheds over 80% of Situational Awareness’ bets
- Billionaire investor Ken Griffin’s Citadel has shed more than 80% of bets from the original portfolio of Leopold Aschenbrenner’s Situational Awareness that it recently purchased, according to a letter to investors seen by Reuters on Friday.
- Situational, an AI-focused hedge fund run by former OpenAI researcher Aschenbrenner, sold the bulk of its stock bets to Citadel last month after heavy losses in its tech holdings forced it to unwind most of its public equities portfolio.
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