The recent market sentiment has been focused on the slowing of data center spending, with some analysts attributing it to a slower frontier development. However, Privo begs to differ, suggesting that there is little evidence to support this notion. While compute remains scarce and workloads are growing, hyperscalers continue to raise their spending intentions. The real constraint, according to Privo, is not the lack of development but rather permitting issues. Broader local opposition and proposed moratoriums could limit the pace and location of capacity build-out, justifying lower multiples for electrical, power, cooling, and data center exposures.

The market has already experienced a significant derating, with SOX falling from around 23x to 13.85x on Bloomberg’s blended 24-month forward numbers. Privo cautions against oversimplifying the situation by treating all physical AI infrastructure as one trade. Instead, he highlights the importance of recognizing the unique challenges and constraints faced by each segment of the industry. For instance, grid constraints can make behind-the-meter power more valuable, while rising inference demand still requires enormous optical bandwidth and interconnect capacity.