AI Compute Investment Wave: US Momentum Continues, Opportunities & Risks for Australian Investors
A blog post by Dr. Ben Lin. Subscribe to any of our services for exclusive member’s only blog posts.
Disclaimer: Dr. Lin has written this article originally in Chinese and used AI to translate it to English.
OpenAI’s recent series of massive AI compute procurement deals has further propelled stock prices in related US sectors. However, market divergence is increasing as investors grow wary about demand sustainability, industry financing structures, and AI investment returns. We believe the US AI capital expenditure (CAPEX) narrative will likely persist in the near term, supported by the current macro and industry environment, but sentiment remains fragile. For Australian investors, it’s crucial to recognize both the opportunities within this global trend and the specific risks and potential of local AI infrastructure and application assets.
Key Market Concerns
Despite the staggering scale of computing orders signed by OpenAI with companies like Oracle, NVIDIA, and others, doubts remain regarding their underlying rationale and execution:
How Real is the Demand? Are these orders based on genuine end-user demand, or are they strategic moves by companies to secure their positions in a competitive landscape? It’s currently difficult to ascertain.
Risks in Financing Structures: Some companies are shifting from equity financing to more aggressive methods like debt financing and supplier financing. The complex financial arrangements involved could amplify systemic risk.
Unclear ROI on AI Investments: A robust loop between AI investment and output has not yet been firmly established. The sustainability of business models still relies on technological breakthroughs and revenue growth.
Short-Term Outlook: Optimism Tempered by Caution
We believe that despite these concerns, the US AI compute sector still has multiple short-term supports:
Strong Supply Chain Data: AI chip and server shipments are flowing smoothly, and memory chip prices continue to rise. Industry leaders maintain an optimistic outlook.
The “FOMO” Mentality: To secure a strategic advantage in AI, major North American tech companies continue to increase capital expenditure. We estimate the combined CAPEX of the “Big Four” will exceed 70% of their operating cash flow in 2025, yet this remains manageable.
Supportive Macro Environment: A combination of expansive fiscal policy and expectations of interest rate cuts has created a liquidity backdrop favorable for tech stocks.
However, the high uncertainty surrounding both AI technological progress and macro policy means the current optimistic sentiment could reverse quickly.
What to Watch in the Near Term
Rather than trying to predict the distant future, focus on these key variables that could shift market sentiment:
OpenAI’s Progress & Competitive Dynamics: Pay close attention to its product commercialization progress and the release of competing models like Google’s Gemini 3.0.
Can AI Monetization Deliver? Whether software and SaaS companies can demonstrate clear AI-related revenue in their Q3/Q4 earnings reports will be a critical validation point.
Q4 2025 Earnings & Guidance from Tech Giants: The earnings season early next year will reveal the latest plans of tech companies regarding the scale and pace of their AI investments.
The Pace of Fed Rate Cuts: An accommodative monetary policy is a key pillar supporting the AI investment narrative; any shifts could impact market sentiment.
Implications for Australian Investors
When engaging with the AI compute theme, Australian investors could consider a ‘global allocation + local complement’ strategy:
Focus on Local AI Infrastructure Assets: This includes data center operators (e.g., NextDC), cloud service providers, and 5G network builders – the physical foundation for AI compute deployment.
Explore AI Application Companies: In Australia’s dominant sectors like healthcare, mining, agriculture, and finance, several companies are already deploying AI to enhance operational efficiency. These firms often have clearer business models and revenue visibility.
Be Mindful of Currency and Interest Rate Risks: Investing in US stocks involves exposure to AUD/USD exchange rate fluctuations. Furthermore, any delay in Fed rate cuts could impact global tech stock valuations.
Risk Factors
Shifting expectations regarding Fed policy; Escalation of geopolitical conflicts;
AI technological progress falling short of expectations; Tightening regulatory scrutiny on the tech sector;
Sluggish global economic recovery impacting corporate IT spending;
Rising debates around AI ethics and data privacy.
Investment Outlook
We judge that the AI compute investment narrative is likely to continue in the short term, supported by the macro environment, strong supply chain data, and the FOMO mentality of tech giants. However, given the high uncertainty surrounding both technology and policy, we advise investors to maintain a flexible, ‘wait-and-see’ strategy, closely monitoring the evolution of the key variables mentioned above.
For Australian investors, alongside potential exposure to leading US AI stocks, gradually building positions in high-quality local companies involved in data centers and AI applications could offer risk diversification and complementary return potential.