Tech giants are shifting from asset-light models to massive capital expenditures, resembling utility companies. This is a red flag, as historical data shows that heavy investment in physical assets—unlike intangible assets—tends to predict future stock underperformance.

Eclipse Ventures founder Lior Susan shares a quote from Sam Altman that flips a long-held venture assumption on its head. The massive compute and talent costs for foundational AI models mean that software—specifically AI—has become more capital-intensive than traditional hardware businesses, altering investment theses.

Unlike the previous era of highly profitable, self-funding tech giants, the AI boom requires enormous capital for infrastructure. This has forced tech companies to seek complex financing from Wall Street through debt and SPVs, re-integrating the two industries after years of operating independently. Tech now needs finance to sustain its next wave of growth.

Unlike prior tech revolutions funded mainly by equity, the AI infrastructure build-out is increasingly reliant on debt. This blurs the line between speculative growth capital (equity) and financing for predictable cash flows (debt), magnifying potential losses and increasing systemic failure risk if the AI boom falters.

Unlike the asset-light software era dominated by venture equity, the current AI and defense tech cycle is asset-heavy, requiring massive capital for hardware and infrastructure. This fundamental shift makes private credit a necessary financing tool for growth companies, forcing a mental model change away from Silicon Valley's traditional debt aversion.

The AI infrastructure boom has moved beyond being funded by the free cash flow of tech giants. Now, cash-flow negative companies are taking on leverage to invest. This signals a more existential, high-stakes phase where perceived future returns justify massive upfront bets, increasing competitive intensity.

Beyond its original meaning of refining data, the "data is the new oil" metaphor now aptly describes the tech industry's capital structure. Tech is adopting a massive, trillion-dollar debt model, similar to the oil and gas industry, to finance its infrastructure boom.

The AI buildout is forcing mega-cap tech companies to abandon their high-margin, asset-light models for a CapEx-heavy approach. This transition is increasingly funded by debt, not cash flow, which fundamentally alters their risk profile and valuation logic, as seen in Meta's stock drop after raising CapEx guidance.

The enormous capital needed for AI data centers is forcing a shift in tech financing. The appearance of credit default swaps on Oracle debt signals the re-emergence of large-scale debt and leverage, a departure from the equity and free-cash-flow models that have characterized the industry for two decades.