Short read: An Overlooked AI Trade…

Praetorian Capital is a hedge fund run by Harris Kupperman, who also writes this wonderful investment blog called Kuppy’s Korner. His blog titled ‘Global crossing reborn’ went viral last year as he likened the current hyperscalers’ mad rush to spending hundreds of billions on AI data centers to the spend on telecom and networking infrastructure during the dotcom boom and we all know how that played out. He hasn’t changed that view yet. “I remain convinced that the economics of AI datacenters are deeply negative. I am also convinced that the hyperscalers will continue to build them anyway. For that matter, I have witnessed AI continue to advance at an impressive rate. While there are frustrating episodes of hallucination and error, AI has become indispensable to my investment process, and I think that many industries will forever be impacted by AI, mainly for the better.”

However, this blog is fascinating in terms of how to think left field and spot a non-obvious trade arising from a megatheme that the rest of the world is chasing. He tees of the investment case with the impending disruption to the job market from AI:

“There has been much debate about how the employment market will be impacted by AI. On one side, there is the technologist view that tens of millions of jobs will be disintermediated by AI, offset with the futurist view that every productivity advancement throughout human history has simply created more jobs—though very different jobs. I’ve listened to this debate, and can see both arguments. However, I think that the only certainty is that AI will create disruption for workers, and it will happen on a massive scale. Fortunately, I don’t think I have to guess correctly on the outcome of AI upon the job market, I just need to put myself in the direction of travel—which seems to be disruption.

…I think that technical colleges will see an explosion in new student starts. I don’t know if these are former tech employees, or office workers who got AI’d, or high school graduates who have come to realize that by the time they graduate college in 2030, they’ll likely have $200,000 in college debt and zero job prospects. All I need to believe is that student populations at technical colleges will explode, and the businesses have a whole lot of operating leverage to this fact.

When I turn to social media, I frequently see young people bemoan their college debt, and the hopelessness of being in the “Permanent Underclass” as they chose wrong in their career paths. As a nation, we’ve over-educated office workers, while under-educating in trades. For many years now, more people have been retiring than getting trained in most trades, and given our highly bureaucratic economy, in many of these fields, you cannot simply walk on and do the job—instead, you need all sorts of certifications and specialized training. This all takes time, and has dramatically tightened the labor market, driving wages much higher.

Recently, the explosion in datacenter construction has further tightened this employee market, especially as datacenters are able to outbid most other industries for talent. I’m a big believer in anecdotes, and over the past few months, I’ve heard crazy stories of companies doing insane things to hold onto people—things that smack of desperation. They also show the incredible pricing power of skilled employees in specialized trades; from turbine and engine maintenance, to welding and electrical engineering.

The earning power is rapidly shifting to those who know how to do things outside of an office cubicle, and have the certifications needed to step onto the field. The free market is sorting this all out, and pushing young people into trades. I think this will only accelerate as younger people work with AI and realize that anything involving a computer interface will likely get disintermediated. The world of the future is not going to be driven by 4-year college programs—it will be driven by doing something useful. Interestingly, the bottleneck here is that there are really only two national-scale and publicly traded technical colleges; Lincoln Technical Institute (LINC – USA) and Universal Technical Institute (UTI – USA).”

Besides the fact that the investment case sounds compelling, the blog is a masterclass in balancing conviction and humility, an impossible trade-off for most.

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