If you strip the AI rally down to what the money is actually buying, you finally find transformers, high-voltage switchgear, copper, industrial-scale cooling, gas turbines, and data centers whose power draw rivals that of a midsize country — a build-out that Goldman Sachs estimates at roughly $7.6 trillion between 2026 and 2031. Market commentary may call this “technology,” but the invoices read “heavy industry.”
The familiar worry about AI is a demand question — “will adoption and revenue ever justify the spending?” Perhaps a more interesting uncertainty is on the supply side: whether the physical build can actually be delivered, and, most interesting for investors, who will get paid to deliver it. Goldman’s own framing splits that $7.6 trillion into compute (about $5.1 trillion), the data centers themselves (roughly $2.1 trillion), and power (a smaller but fast-growing $0.4 trillion) — and notes that a next-generation AI facility now costs over $20 million per megawatt to build, up from around $10 million during the cloud buildout.
Chips get the headlines, but the copper, the capacitors, the cooling, and the concrete get the checks. The AI build-out is an industrial event misfiled under “technology,” and there will be downstream consequences (positive and negative) visible throughout the industrial sector.
We’ve argued for most of this year that we see the more durable investment trend for AI lies behind the chips — in the power, components, and materials that relieve the bottlenecks — rather than the cyclical hardware names creating the bottlenecks (several of whose stock prices went parabolic). The binding constraint has moved from compute to the physical inputs around it (as we can see from the intelligent selling and leasing of excess compute in various hyperscaler deals) — interconnection queues, transformers, switchgear, turbines, and cooling, all with lead times measured in years. A shortage today is not a moat tomorrow, to be sure; but the direction of travel is unambiguous: the AI story is dragging a very old-economy supply chain forward with it.
Further, the industrial pull is not only coming from AI. On last week’s call we walked through the tailwinds behind the U.S. economy and a reindustrialization that is now backed by policy rather than hope — reshoring, security-as-industrial-policy, and a manufacturing base that Washington has decided, on a bipartisan basis, it wants to be more at home. With the June payroll print soft enough (+57,000, with the two prior months revised down) to keep the Federal Reserve from over-tightening, and industrial raw-material prices — steel and the like — breaking out over the past six months even as oil and precious metals fell, Mizuho calls industrials “a perfect rotation candidate from the crowded AI trade.” Add the reconstruction and fresh natural-gas capacity following the as-yet unresolved disruption in the Gulf, and the non-residential construction boom stops looking like a single-story building. For the first time in a generation, industrial demand has a policy tailwind behind it, rather than merely a cyclical one.
This letter is general commentary — the wide-angle view. It is not a portfolio. What we do for the families we work with is the opposite of “wide-angle”: we make portfolios built around one household’s circumstances, taxes, timelines, and appetite for exactly the kind of volatility described above. We keep that roster of clients deliberately small, because that sort of attention doesn’t scale. If you’d like to talk about what it would look like for you, Aubrey Ford will make the time.
Defense Reindustrialization Goes Global
Perhaps the least cyclical piece of that policy tailwind is defense, and its scale is easy to under-appreciate from a U.S.-centric vantage point. Morgan Stanley estimates Asian defense spending reached about $700 billion in 2026 — 1.8% of regional GDP, the highest share since at least the early 1990s — growing at a 6.6% annual clip since 2022, up from 4.5% in the prior decade. If the region’s stated commitments are met, that figure climbs toward $1–1.2 trillion, with Korea aiming for 3.5% of GDP, Taiwan 5%, and India 2.5% — and with the capital-expenditure slice, that is, the actual hardware orders that flow to industrial firms, growing from roughly $260 billion toward as much as $570 billion by 2030. Layer NATO on top, where members have signed up to a 5%-of-GDP framework (3.5% core defense plus 1.5% of broader security spending), with the U.S. administration openly pressing allies to carry more of the load. This is a genuine second leg — largely uncorrelated to the AI trade and underwritten by sovereign balance sheets rather than the credit cycle.
Of course, defense is, historically, a low-productivity use of capital, though it does come with an offset that is difficult to quantify: a good share of general-purpose technology, from GPS to the internet to drones, traces back to military spending, and AI looks likely to extend that pattern. Further, this is government-funded demand. U.S. net interest costs now run ahead of U.S. defense spending outright, and while much of Asia has the fiscal room to sustain higher budgets, the bill for a global rearmament eventually arrives in the bond market. Durable is not the same as free. There will be eventual consequences to a major bolus of military spending… though of course, the productivity its general-purpose technologies enable may make up for a great deal of it.
Here is something we would underscore for investors thinking about how to approach the trade of an industrial renaissance, who are tempted to buy “defense” as a single blanket idea. A great end-market does not a great company make. Nowhere is that clearer than in European defense, where the demand story is close to unimpeachable — order books at multi-decade highs, political will finally present — and yet the businesses filling those order books are, with a handful of exceptions, not being run as though they know it. The European primes remain fragmented national champions, slow thanks to politicized procurement, hemmed in by export rules, and content to let a large share of rising European budgets flow toward American hardware rather than aggressively build capacity and margin at home. The theme is one of the best of the decade. Many of the vehicles for it are, disappointingly, just indifferent compounders. A great end-market and a great company are not the same investment — and in European defense the two part ways.
So, What Might Belong on a Buy List?
To sum up: the picture is less a narrow technology rally than a broad industrial one, arriving through two doors at once: the physical requirements of the AI build-out through the first, and a policy-driven reindustrialization-and-rearmament wave through the second. The crowded, expensive, much-worried-about layer is the semiconductors, especially memory. The other layers of the economy being quietly pulled along behind them — power, components, materials, and the broad range of businesses that make up the industrial base — could be more attractive. In many cases, these companies’ stock prices have moved up, but we can expect pullbacks; we are researching many opportunities to add to our buy list.
Have Children or Grandchildren? Here Is Something You Can Do Today That Can Pay Off Big
A last aside for parents and grandparents: the “Trump accounts” are now live. For U.S.-citizen children born between January 1, 2025 and December 31, 2028, the government will seed $1,000 — invested in a broad U.S. equity index — once a parent or guardian opens the account and files the election. Families can then add up to $5,000 a year; any child under 18 is eligible to hold an account. The structure is a traditional IRA: contributions compound tax-deferred and the account converts to a standard traditional IRA at 18. The seed and all gains are taxed as ordinary income on withdrawal; the family’s own after-tax contributions come back untaxed. In our view, the program will quietly turn a generation into shareholders, and channel a modest, steady bid into domestic equities — and will double as a deliberately visible advertisement for the rewards of owning American capitalism at a moment when skepticism of markets runs high among some younger voters. We suggest all families with children take advantage of this program. Click here to learn how.
Thanks for listening; we welcome your calls and questions.
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