2023: The Year AI Rewired the Investment Thesis

Twelve months ago, generative AI was a topic of specialist interest — known to technologists, discussed in venture capital circles, but not yet a mainstream investment theme. By December 2023, it had become the defining narrative of global capital markets. Nvidia's stock had tripled. The term 'AI infrastructure' had entered the vocabulary of every institutional investor. And the OpenAI board crisis of November — in which Sam Altman was fired and rehired within five days — had demonstrated that the governance of AI companies was as important as their technology.

The investment lessons of 2023 are worth examining carefully, because the year contained both genuine insight and significant noise. The genuine insight is that the infrastructure layer of AI — the data centres, the networking, the power — is a real and durable investment opportunity. The demand for compute is not speculative; it is being driven by the deployment of AI applications that are already generating revenue and changing the way businesses operate. The infrastructure required to support that demand will need to be built, and the capital required to build it will need to come from somewhere.

The noise is the assumption that every company with 'AI' in its pitch deck is a good investment. The year produced a generation of AI startups that raised capital at valuations that assumed they would capture a significant share of a market that does not yet exist at scale. Some of these companies will succeed. Many will not. The discipline of distinguishing between the infrastructure opportunity — which is relatively straightforward to underwrite — and the application opportunity — which requires a view on competitive dynamics that are genuinely uncertain — is the most important skill for AI investors going into 2024.

At Lensbridge, our focus has been and remains on the infrastructure layer. We believe that the companies and assets that enable AI — the data centres, the networks, the power systems — will generate more predictable and more durable returns than the AI applications themselves. The events of 2023 have reinforced that conviction, and we enter 2024 with greater clarity about where the opportunity lies and how to access it.