Tom King, chief investment officer at Nanuk Asset Management, has highlighted key differences in the current artificial intelligence (AI) investment cycle that set it apart from previous infrastructure booms, suggesting the sector is less vulnerable to a widespread collapse. Speaking from Sydney, King, who oversees the $1.2 billion New World Fund, identified three primary factors that distinguish the AI investment landscape.

First, King noted the unique flexibility of data centers, which, unlike traditional infrastructure such as railways or cables, are not fixed to specific geographic locations. Data centers can serve clients globally, reducing the risk of becoming “stranded assets.” Second, the hardware these centers depend on—particularly semiconductor chips—has a relatively short useful life, typically depreciated over five to six years. This creates a steady replacement cycle, rather than a single investment peak followed by decline.

The third and most critical distinction King pointed to involves supply constraints. Despite rising bond yields, financial backing for AI infrastructure has so far not been a limiting factor. Instead, the main bottleneck is electricity availability. He revealed that in the United States, applications for grid connections vastly outnumber the approvals granted, limiting new data center construction. “If we had unlimited electricity supply, we’d have twice as many data centers built now as there are in existence,” King said. This scarcity underpins strong demand for existing facilities, evidenced by Citi analysts reporting double-digit weekly growth in rental prices for the latest-generation Nvidia graphic processing units.

However, King expressed concerns about highly leveraged “neocloud” operators that rent computing capacity on short-term contracts to cash-rich but unproven startups. He compared this model to the U.S. renewable energy developers of a decade ago who collapsed after relying heavily on inflated valuations to raise equity. King cited the recent withdrawal of Firmus Technologies’ initial public offering as an example of vulnerabilities in this sector. Credit markets have already begun pricing in these risks, with elevated default-insurance spreads on several firms, including Oracle, CoreWeave, and SpaceX.

Despite these challenges, King does not believe such failures will undermine the broader AI investment thesis. He suggested that large hyperscale operators like Microsoft or Google are likely to acquire distressed assets at discounted prices, sustaining overall demand for computing resources. A more complex question lies in identifying who will finance the projected growth in AI capacity through 2030. Current uses—such as training larger models, powering search engines, social media, and early enterprise adoption—account for only a fraction of the anticipated computing demand. King acknowledged the uncertainty surrounding future revenue sources, likening it to the unforeseen emergence of the app economy following the launch of the iPhone.

Nanuk Asset Management is positioning itself to benefit from shifting supply chain bottlenecks rather than making concentrated bets on prominent AI stocks. The fund’s portfolio spans a range of companies, from chip manufacturers like SK Hynix to IT consultancy Northland, which assists with cloud adoption, and U.S.-based backup power supplier Generac. King emphasized that Nanuk maintains AI-linked stock exposure aligned with its benchmark, avoiding all-or-nothing strategies. This approach has produced a 23.5 percent annual return over three years for the New World Fund, outperforming the MSCI All Country World Index’s 18.7 percent return during the same period.

King, who also holds a gold medal from the 2000 Sydney Olympics in sailing, has led Nanuk’s investment team for the past 12 years since helping establish the firm in 2009. With volatility expected to persist following recent earnings reports from major tech firms such as Alphabet and Amazon, King advises investors to balance caution with engagement in the AI theme. “The bottlenecks will keep shifting—and so will the winners,” he said.