While the market obsesses over AI chipmakers, a $25 billion credit investor is cashing in on the less obvious—and potentially more sustainable—winners of the AI revolution: the telecom and satellite companies building the essential data pipelines, a strategy now paying massive dividends as the cycle matures.
The deafening roar of the artificial intelligence gold rush has centered on one thing: the picks and shovels. For most investors, this has meant a frantic chase to own semiconductor giants like Nvidia and the builders of massive data centers. But according to Scott Goodwin, cofounder and managing partner of Diameter Capital Partners, this laser focus misses the broader, more profound investment cycle now unfolding.
Goodwin, whose firm manages approximately $25 billion in credit assets, argues that the real, long-term opportunity lies not in the chips themselves, but in the entire ecosystem required to make AI work at scale. In a recent appearance on the Goldman Sachs Exchanges podcast, he laid out a compelling case for looking beyond the obvious.
“This is a super-duper micro cycle that will outlast many investing careers,” Goodwin stated, attributing the quote to his partner Jonathan Lewinsohn. This isn’t a short-term trend; it’s a fundamental technological shift creating a multi-decade investment landscape.
Why the AI Trade Is More Than Semiconductors
The initial phase of the AI boom was defined by the training of large language models, a process that demanded immense computational power and, consequently, a historic surge in demand for advanced semiconductors. This phase propelled Nvidia’s valuation to unprecedented heights and sparked a global scramble for GPU capacity.
However, Diameter Capital’s thesis is that the next phase—the deployment and inference phase—is fundamentally different. Once models are trained, they need to be used. This means data must flow from end-users to processing centers and back again, instantly and reliably. This shift moves the bottleneck from pure computation to data transmission.
“It had to leave the data center. How would it leave? It would leave on the commercial fiber, the pipes,” Goodwin explained. This insight led his firm to a contrarian play in 2023: buying the unsecured debt of a midsize telecommunications company.
The bet was that this company, positioned within the critical infrastructure of data transmission, would become indispensable to hyperscale cloud providers like Amazon Web Services, Microsoft Azure, and Google Cloud. The thesis proved correct. The telco went on to secure over $10 billion in contracts with these cloud giants, and its debt rallied back to par value, delivering significant returns for Diameter.
The Satellite Spectrum Play
Diameter’s strategic thinking didn’t stop with fiber optics. Goodwin also revealed a “big bet” on a satellite company that held valuable wireless spectrum assets.
The rationale here was similar: as AI applications become more pervasive, especially in mobile and remote settings, the demand for wireless bandwidth will explode. Spectrum is the invisible real estate that makes this possible, a finite resource that becomes more valuable as demand increases.
This investment also paid off handsomely when the company sold its spectrum assets, causing its debt to likewise rebound to face value. These two cases illustrate a core tenet of Diameter’s approach: identify the essential, often overlooked, bottlenecks in a technological shift and find the undervalued credit instruments tied to them.
The Hidden Risks in the Obvious Plays
While Goodwin is bullish on the long-term AI cycle, he issued a stark warning about the risks piling up in the most crowded trades, particularly in chip financing.
He highlighted the phenomenon of investors taking on “residual risk”—the riskiest portion of financing deals that bets on the future value of the underlying hardware. In the fast-moving tech world, today’s cutting-edge chip is tomorrow’s obsolete relic. Companies frequently refresh their technology, making the long-term value of specific hardware incredibly difficult to predict.
“We call up really smart people in Silicon Valley, we call up really smart people at Big Tech companies and ask them what the residual value is on these chips three, four, five, six, seven years forward,” Goodwin said. “None of them have a clue.”
This uncertainty creates a significant underpricing of risk in parts of the credit market that are racing to fund the AI capex boom. It’s a classic case of euphoria overshadowing due diligence.
The Next Phase: Competitive Disruption
Looking ahead, Goodwin sees the narrative evolving from capital expenditure to competitive disruption. The question is no longer just who will build the AI infrastructure, but who will use it most effectively to dominate their respective industries.
“Who are the companies, who are the entities that are going to adopt AI and take a step forward versus their peers? And who are going to be the losers?” he asked.
This phase, he argues, will be longer and more complex than the initial infrastructure build-out. It will involve analyzing business models across every sector to identify which companies have the leadership and operational agility to integrate AI and gain a decisive competitive edge. This will create a new set of winners and losers, offering a fresh landscape for credit investors to analyze.
“That is actually a longer cycle than the capex cycle, so that’s really interesting,” Goodwin concluded.
What This Means for Investors
For investors, Diameter Capital’s strategy offers a crucial framework for navigating the AI boom:
- Look Beyond Equities: The credit market offers unique opportunities to capture the value of the AI build-out, often with more secured positions and predictable returns than volatile equities.
- Identify Bottlenecks: The greatest value may not be in the most famous names but in the companies that provide an essential, hard-to-replicate service for the entire ecosystem.
- Assess Long-Term Viability: In the chip space, be wary of financing models that rely on uncertain future residual values. The risk may be far greater than the market is pricing in.
- Think in Phases: Understand that the AI revolution will unfold in distinct phases—from training to inference to widespread adoption and disruption. Each phase will create its own set of investment opportunities.
The AI megatrend is real, but its investment landscape is vast and nuanced. As Diameter Capital’s success demonstrates, the most lucrative opportunities often lie in the quiet corners of the market, far from the spotlight currently shining on chipmakers. For investors seeking sustainable returns, the message is clear: look at the entire board, not just the most prominent pieces.
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