Why the AI Rally is Failing: 3 Reasons You’re Investing Wrong

Stop looking at the Nvidia ticker. You missed the boat.

Or worse, you’re sitting on a boat that’s taking on water.

I spent the last six months talking to VCs, data center engineers, and the founders who are quietly pivoting. The consensus behind closed doors is different from the CNBC headlines.

The "Gold Rush" phase is over. We are now in the "Inventory" phase. And most of what you own is junk.

Here are the three reasons you’re investing wrong.

1. You are Buying "Wrappers" and Calling Them Moats

If your "revolutionary" product can be replicated by a 19-year-old with a weekend and a Python script, you don't have a business. You have a feature.

The incumbents are waking up.

Microsoft, Adobe, and Google are not going to let a Series A startup steal their workflow. They are simply absorbing the features. If your investment relies on "summarizing PDFs" or "generating emails," you are betting against the house. The house always wins.

The value isn't in the interface. It's in the proprietary data. If the company you’re backing doesn't own a unique, non-public dataset that took ten years to build, they are a commodity. Commodities don't get 20x multiples. They get crushed.

2. The Unit Economics are a Disaster

In the SaaS era, margins were 80%+. You build it once, you sell it a million times. The cost of serving the next customer was essentially zero.

I’ve looked at the burn rates. Companies are spending $0.50 in compute costs to generate $1.00 of revenue. Once you add in marketing, payroll, and the inevitable "churn," they are losing money on every single customer.

This isn't "blitzscaling." This is a bonfire.

The market is currently pricing these companies like high-margin software businesses. They aren't. They are heavy-utility businesses. They look more like FedEx or Exxon than they do Facebook.

The rally is failing because the "Growth at All Costs" model is hitting the wall of physics. We are running out of cheap chips. We are running out of cheap power. When the cost of the raw material (compute) stays high, the dream of infinite scaling dies.

If you aren't looking at the "Cost per Query," you aren't investing. You’re gambling.

3. The Productivity Paradox is Real

But here is the hard truth: When everyone is 10x more productive, the value of the output drops by 90%.

We are seeing a massive "Devaluation of the Output."

Investors are betting on the tools that create more stuff. But the world doesn't need more stuff. It needs better stuff. It needs truth. It needs execution.

The rally is stalling because the "Efficiency Gain" is being captured by the consumer, not the company. Prices are being driven down to the floor. The "AI Premium" is vanishing.

You’re investing in the "Hammer" in a world where every house is already built. You should be looking for the person who owns the land.

The Insight: The "Dirt" Play is the Only Play Left

Here is the take that will get me blocked by the Silicon Valley "Optimists."

The real money is moving into Hard Power.

I’m talking about the "Boring" stuff. Electrical transformers. Copper mines. Nuclear energy. Small Modular Reactors (SMRs).

The companies that own the power generation and the cooling infrastructure are the new landlords of the internet. They have the only real moat left: Physical scarcity. You can’t "disrupt" a power plant with a better algorithm. You can’t "disrupt" a copper mine with a ChatGPT plugin.

In 2023, we bought the Dream. In 2024, we bought the Hardware. In 2026, we are buying the Juice.

The software rally is failing because the software is becoming a commodity. The infrastructure rally is just beginning because the infrastructure is a necessity.

Stop chasing the "Next Big App." Start looking at who owns the switch that turns the app on.