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The AI arms race is turning Big Tech into glorified utilities and that’s a red flag for investors.

The Magnificent 7 — Meta, Apple, Tesla, Nvidia, Microsoft, Amazon and Nvidia — are being forced to abandon the asset-light business models that fueled their dominance.

In the scramble for AI supremacy, they are becoming asset-heavy industrial firms in a shift that history suggests will erode future returns, according to Kai Wu, founder and chief investment officer of Sparkline Capital.

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“The irony to this whole thing is that the big tech companies who are actually creating this technology are in many ways actually worsening their position competitively,” Wu told me on Full Signal.

The data justify the concern. Since 2012, the Mag 7’s collective capital expenditures have soared from 4 percent of revenue to 15 percent.

Meta, for instance, plans to spend roughly 35 percent of sales on data centers, a level that matches the average utility and exceeds AT&T’s peak dot-com bubble spending.

Through history, share prices for asset-heavy businesses have underperformed their asset-light peers across all sectors.

What looks like a spending blitz on the surface is masking a fundamental change in market structure.

The economic moats that made these companies distinct — across search, social, retail — are collapsing into a single, viciously competitive arena for general AI.

In Wu’s view, the current boom shares parallels with previous infrastructure buildouts like the 19th century railroads or the internet-era fiber-optic cables, which saw most of the early builders go bankrupt.

The lasting value accrued to the next wave of companies — like Netflix post-dot-com — that leveraged the cheap, overbuilt capacity after the initial boom lost momentum.

This framework suggests the companies most essential to the AI revolution today are the ones actively dismantling the qualities and discipline that made them so critical in the first place.

If the historical pattern holds, the winners of the AI era won’t be the indebted builders of the early years but the companies that arrive later to build transformative businesses on top of the cheap, commoditized capacity left in the boom’s wake.

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China has figured out the US strategy for allowing it to buy Nvidia Corp.’s H200 and is rejecting the AI chip in favor of domestically developed semiconductors, White House AI czar David Sacks said, citing news reports. President Donald Trump said on Monday he would allow shipments of Nvidia’s H200 to China, part of an administration effort backed by Sacks to challenge Chinese tech champions like Huawei Technologies Co. by bringing American competition to their home market. On Friday, Sacks signaled that he was uncertain about whether that approach would work. “They’re rejecting our chips,” Sacks said in an interview on Bloomberg Tech, citing an unspecified news article he had seen that day. “Apparently they don’t want them, and I think the reason for that is they want semiconductor independence.” David Sacks, White House AI and Crypto Czar, joined Ed Ludlow and Caroline Hyde on “Bloomberg Tech.” Sacks’ comments raise questions about whether Nvidia will be able to recover revenue from China, a data center market it has removed entirely from its forecasts but that Chief Executive Officer Jensen Huang has put at $50 billion this year. Bloomberg Intelligence analysts estimate annual H200 revenue in China to be a $10 billion opportunity — but only if the nation accepts the US firm’s chips. In a statement from a spokesperson, Nvidia said it continues to work with the administration on H200 licenses for vetted customers. “While we do not yet have results to report, it’s clear that three years of overbroad export controls fueled America’s foreign competitors and cost US taxpayers billions of dollars,” the company said. China is weighing a package of incentives worth as much as $70 billion to support its local chipmaking industry, Bloomberg reported Friday, underscoring Beijing’s resolve to reduce its reliance on foreign chipmakers such as Nvidia. It suggests the government will continue to support companies like Huawei and Cambricon Technologies Corp. even with the H200 cleared by the US for export to China. The H200, which was introduced in 2023 and began shipping to customers last year, is part of the Hopper generation of Nvidia’s chips, second-best to the Blackwell line and two generations behind the upcoming Rubin series. An 18-month lag behind the latest Nvidia chips was part of the Trump administration’s justification for the decision.

Sacks, a venture capitalist who joined the administration in January, identified China’s desire to prop up and subsidize Huawei as a key reason for its H200 reluctance. Even so, he defended the decision to allow China to access H200 chips, which he called a “lagging” technology and no longer state-of-the-art. “What you see is China’s not taking them because they want to prop up and subsidize Huawei,” Sacks said. “That was part of our calculation, of selling not the best but lagging chips to China, is that you can take market share away from Huawei, but I think the Chinese government has figured that out, and that’s why they’re not allowing them.” The H200 decision was motivated by an assessment that Huawei — Nvidia’s Chinese archrival — offers AI systems with comparable horsepower, including its Cloud Matrix 384 platform, which links hundreds of processors together to compensate for lower performance in individual chips. Some US officials saw the H200 as compromise from Nvidia’s earlier push to export a version of the Blackwell chip to China, according to a person familiar with the matter.

Last week, as officials weighed the decision, Huang told reporters in Washington that he had no clue if China would accept H200 chips. On Monday, Trump said in a Truth Social post that President Xi Jinping of China responded positively to the possibility of H200 export approvals. Beijing has yet to publicly agree to allow imports of Nvidia’s H200 products. It also has yet to publicly reject them, despite the recent US policy change. Earlier this year, China shunned the H20, a significantly less capable chip Trump allowed this summer.