A Motley Fool columnist argues that the biggest winners of the AI boom may not be the companies spending on it. He points to the internet and railroad build-outs, where the businesses that used the finished infrastructure benefited most.
A Columbia University estimate puts cumulative AI infrastructure investment and spending at around $9 trillion from 2025 to 2032. The same estimate projects that the spending will need to generate more than $3.5 trillion in annual revenue by 2032 to break even. Columnist David Dierking of The Motley Fool says those figures show how high the bar is for companies to generate a proper return on investment.
The internet build-out rewarded users, not builders
Dierking looks first to the late 1990s. Telecom companies spent huge amounts on new fiber optic networks, and investors assumed internet traffic would grow fast enough to deliver a huge ROI. Usage did explode, but the market was wrong about who would win.
Telecom companies built too much, new investment collapsed and telecom stock prices took a big hit, according to Dierking. Yet the build-out improved equipment quality and cut costs, which helped internet-based businesses become financially feasible sooner. In his telling, the businesses that used the finished product did better than the companies that built it.
Railroads followed a similar path
Dierking says 19th century railroad expansion had a similar outcome. Competition, over-construction and mixed economic conditions hurt the ROI on much of that spending. But rail became the cheapest and fastest way to move goods, and lower shipping rates benefited factories and manufacturers.
Where Dierking sees the next phase
If competition and technological improvements make AI substantially cheaper and more accessible, he writes, end users who adopt it could become more attractive. He likes the State Street Industrials Select Sector SPDR ETF, known as XLI, as a real opportunity. In his view, manufacturers could cut production costs and transportation companies could improve logistics.
Dierking says tech funds such as the Vanguard Technology ETF and the Fidelity MSCI Information Technology Index ETF could still prove to be good investments. But he notes that a lot of good news is already priced in and that these booms tend to reverse at some point. He would keep the Vanguard S&P 500 ETF and the Vanguard Morningstar Total Stock Market ETF as core positions, with XLI as a complementary position with a small allocation.
Source: The Motley Fool
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