Episode summary
AI is Heading for a Massive Oversupply: Top Hedge Fund Manager’s Prediction | David Orr
Monetary Matters
· · 55 min · Hosts: Max Wiethe · Guests: David Orr
Summary
David Orr argues that the AI trade has moved from scarcity to potential oversupply. He says the market was already looking for an excuse to sell off, but the more important driver is positioning unwinding from crowded leveraged bets in semiconductors and data centers. In his view, AI compute will become too abundant before the physical economy, regulation, power, and other bottlenecks can absorb it.
Orr says the near-term setup is bearish because hyperscale capex is enormous while the main buyers of compute are still mostly software companies. He thinks that if those buyers decide they do not need as much capacity as expected, resale prices for compute could collapse. At the same time, he says the large hyperscalers can still be attractive because their contracts and returns on capital limit downside if the boom slows.
He extends the deflationary argument beyond chips to white-collar labor and software margins. Orr thinks many office jobs will disappear, most software products will become commoditized, and AI will mostly benefit consumers and a few wide-moat platforms. He also suggests a longer-term shift toward physical trades, custom building, and more hands-on work as AI makes information services cheaper and less scarce.
Key takeaways
- David Orr thinks AI compute is heading for oversupply because capex is huge and demand is still concentrated in software companies.
- He says levered long-semiconductor trades blew up together, which helped drive the recent selloff.
- Orr likes hyperscalers such as Google, Amazon, and Microsoft because their AI projects can still earn around 35% returns on capital and their downside is limited.
- He believes most white-collar jobs are going away and that software pricing power will erode as AI drives costs toward zero.
- Orr expects more value to shift into physical-world work, especially trades, custom homes, and other tangible projects.
Notable quotes
“AI is going to be in an over supply. So, we're going to have too much intelligence and it's going to take years for the physical world to catch up”
“Basically, besides software companies, nobody is really buying this compute”
“My favorite um AI play would just be among the hyperscalers like Google, Amazon, and Microsoft”
“I think that most of those white collar jobs are going away”
“It's kind of random. These narratives don't really make any sense, right”
How the episode opens
AI is going to be in an over supply. So, we're going to have too much intelligence and it's going to take years for the physical world to catch up. You can't have too much intelligence, but short term you're going to run into all sorts of other bottlenecks and you're going to have way too much compute.
Basically, besides software companies, nobody is really buying this compute. And then, so are software companies actually going to need even more than what we already have? It's just a matter of time before basically the software companies say, "Oh, we don't actually need this.
And then you start reselling your capacity and then once that starts happening, it just goes to a tiny fraction of the price. This episode is brought to you by Sarma Partners, who manages a return to tangibles ETF, Lens, ticker Lens, the Sarma thematic ETF built for a return to Tangibles. Learn more at surmiaetf.com and see the show notes for disclosures.
Let's get into it. Hello and welcome to Other People's Money. I am joined today by David our founder of Militia Capital, a hedge fund that he's been running for a number of years now that has absolutely fantastic returns.
They've compounded at 48% annualized. David, you've grown to over 500 million. Thank you for coming on the show.
Thanks for having me. — We are in quite the environment. We're recording this the week after US midterms and the market has had quite a reaction to the results. Um, some of the things that are happening have kind of been underway even before we got the midterm results. I'm interested in what you think of the unwinding of what really was the most popular trade of the year and long AI infrastructure, data centers, semiconductors.
From the episode’s captions: roughly the first two minutes, lightly cleaned. Keep watching on YouTube →
Topics
- ai infrastructure unwind
- semiconductor trade glut
- ai capex oversupply
- deflationary impact on software moats
- hyperscalers downside protection
Companies and tickers mentioned
- Militia Capital
- Sarmaya Partners
- Sarmaya LENS ETF
- Empowered Funds
- ETF Architect
- PINE Distributors LLC
Watch the episode
Summary, takeaways and quote selection by Octagon. Quotes are short excerpts; the full conversation is in the episode.
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Monetary Matters, this episode and its artwork belong to Jack Farley. Octagon is not affiliated with the show; this page is an independent summary.
