Editor’s note: Today, Porter delivers the final essay in a three-part series on the implosion of Leopold Aschenbrenner’s Situational Awareness fund – and the key reason behind its failure that everyone seems to be missing…

One thing Leopold Aschenbrenner never likely asked himself was this: How could all of this spending possibly pay off?

Bain & Company’s global technology report puts it at roughly $2 trillion of annual artificial intelligence (“AI”) revenue by 2030, and calculates that even if every dollar of on-premise IT budget shifted to the cloud and every dollar of AI productivity savings were reinvested, the industry would still be about $800 billion short. Sequoia Capital’s David Cahn, who has been running the same arithmetic since 2023, has escalated his estimate from $200 billion to $600 billion to roughly $840 billion.

Against that: OpenAI’s audited 2025 revenue was $13.07 billion, with an operating loss of $20.92 billion. Anthropic’s 2025 revenue was $10 billion. Combined, $23 billion.

And of every dollar spent on Nvidia (NVDA) systems, roughly 75 cents is Nvidia’s gross profit. Data center is now 88% of Nvidia revenue. The margin is not in the buildout. The margin is in selling to the buildout.

What’s about to happen is obvious, because it has happened before.

Between 1865 and 1873 the United States built the most consequential physical network in its history and destroyed an enormous amount of capital doing it.

Track mileage went from 35,085 miles in 1865 to 52,922 in 1870 to 74,096 by 1875. Construction peaked at 7,439 miles laid in 1872. Railroad capital reached roughly $4.5 billion at a time when the entire banking system’s capital was $720 million and the federal debt was $2.3 billion. In January 1870, of 896,596 shares traded on the New York Stock Exchange, 781,340 – 87% – were railroad shares. From 1870 to 1874, roughly 70% of all railroad securities issued in London were American. American rail bonds paid 6.5% when British consols paid far less, and European capital came for the yield.

Every argument you hear today was made then, too. The railroads will transform the country. Yep, they did compress distance and cost of transportation in a way that seemed impossible only a few years earlier. And it didn’t make any difference.

On September 18, 1873, Jay Cooke & Co. failed. Cooke had contracted to place $100 million of Northern Pacific 7.3% gold bonds, but sold less than $20 million. He ended up effectively owning 75% of the railroad he was supposed to be financing. And it failed. The New York Stock Exchange closed for 10 days – the first closure in its history.

By 1876, 134 railroads were in default on $500 million of bonds out of roughly $2 billion outstanding. By 1877, 20% of American railroad track mileage was in receivership. European investors are estimated to have lost around $600 million between 1873 and 1879.

A very large fraction of the capital that built the American rail network was lost.

And where the roads survived, competition took the returns. Revenue per ton-mile fell from 1.88 cents in 1870 to 0.73 cents in 1900, a decline of about 61%. Rate wars on the New York-to-Chicago corridor drove the through rate from $1.88 down to 25 cents, then 20 cents, and no pooling agreement stabilized the worst of it until late 1885.

Every additional mile of track made the network more valuable to America and less valuable to the men who had paid for it.

The AI build-out will have the same problem – but it will be much, much worse. Compute will be a pure commodity.

Nobody disputes that the models are transformative. The problem is, that’s true of all of them.

Which of the second-derivative names Aschenbrenner owned has route control, like a monopoly railroad? Bitcoin miners with retrofitted substations? Rented compute resold at a spread? Memory, an industry that has never once earned its cost of capital through a full cycle? Those are not tollbooths. Those are the Northern Pacific just before bankruptcy.

The railroads made a fortune – but not for their investors.

Adams Express was incorporated in 1854 with $1.2 million of capital. It did not own a single mile of track. It bought space on other trains and moved parcels, money, and valuables on them. By 1866 its capital was $10 million and it was paying an 8% dividend quarterly. By 1875 its capital was $12 million. It paid an unbroken $8 per share annual dividend from 1869 forward – straight through the depression that put a fifth of American rail mileage into receivership, and straight through the next one in the 1890s.

American Express (AXP) declared a $6 dividend in 1869, cut it to $3 in the depression year of 1877, restored it to $6 by late 1881, and held it there for the rest of the century. An 1888 board report showed 10-year net earnings of $26.24 million.

By 1890, the express companies were handling more than 115 million packages a year over 174,535 miles of railroad and steamship routes. And they didn’t own a single locomotive or a single boat.

Pullman’s Palace Car Company was organized in 1867 with $1 million of capital. It did not own track either. It owned the sleeping cars and leased them to the railroads. Capital grew to $36 million by the early 1890s with nearly $25 million of accumulated surplus. Dividends ran 9.5% to 12% from 1867 to 1871 and 8% annually for decades after. In 1879, with 464 cars out on lease, it earned gross revenue of $2.2 million and net profit of almost $1 million.

Pullman put out $1 million of equity and earned $1 million a year on a network that cost other people billions and bankrupted a third of them.

Adams Express converted itself into a closed-end investment fund in 1929 and is still listed today as Adams Diversified Equity Fund (ADX). The company that rented space on the railroads outlived almost all of them.

I’d bet a lot of money that Leo had never heard of any of these businesses.

But for people who are experienced in putting capital at risk, the pattern is not subtle or hard to understand. When an economy builds an expensive new network, the capital that builds the network earns a poor return because competition, obsolescence and overbuild strip it away. The businesses that ride on the network at near-zero incremental capital cost, and that own the customer relationship, the data or the standard, keep the profit.

I’ve seen this entire act before, during my career.

In the five years after the Telecommunications Act of 1996, carriers poured more than $500 billion into fiber, switches, and wireless networks. By the early 2000s no more than 2% of North American long-haul capacity was in use. Global Crossing raised roughly $20 billion, built 100,000 miles of undersea fiber, filed for bankruptcy in January 2002, and saw its assets change hands for about $250 million – roughly 1.25 cents on the dollar of invested capital. WorldCom filed six months later, at the time the largest bankruptcy in American history.

Who got the value? Alphabet (GOOG), Amazon (AMZN), and Netflix (NFLX), which built businesses on top of bandwidth that had become nearly free because somebody else had already gone bankrupt providing it. By 2018 and 2019, Google and Facebook (META) were funding roughly four of every five dollars of new transatlantic cable investment – buying the rails only once the rails were cheap and only once they owned the applications that made the rails worth owning.

Leopold Aschenbrenner is not stupid. He is the opposite of stupid, which is part of the problem. He is a brilliant technologist who has never had to make a payroll, never had to explain to an auditor why the electronic records changed, never had to decide whether to spend 18 months and $40 million ripping out a working system to save $200,000 a year in license fees.

He looked at enterprise software and saw code. A businessman looks at enterprise software and sees the thing his company cannot operate without for a single day, priced at 1% of the employee who uses it, backed by a validated audit trail he would have to rebuild from scratch in front of a regulator, and running on a contract he signed for three years.

An investor who has read a balance sheet from 1874 sees $220 billion of annual capital expenditure, an 8x-levered reseller of rented compute borrowing at 12%, $27 billion of data-center debt hidden in a special purpose vehicle, and useful-life assumptions that the most experienced operator in the business is quietly walking back.

The kid believed the technology determines the return. But it never has.

It’s the capital structure that determines the returns: who controls the standards, who controls the customer, and who owns the data? Yes, the AI models will change everything. But that does not mean the people building the machines will be paid for it.

The money will be made where it was made in 1874 and again in 2004: by the tollbooths riding on top of somebody else’s ruinous capital expenditure.

Tell me what you think of today’s Daily Journal: [email protected]

Good investing,

F. Porter Stansberry
Stevenson, Maryland

P.S. And one final note about Leopold, published in The Wall Street Journal two days ago:

Oil Prices Could Send These Three Stocks Soaring

If the turmoil in the Middle East has you rushing to buy oil stocks right now – STOP and read this.

The biggest gains from the last oil crisis didn’t come from oil companies.

The top-performing energy stocks were tiny. Practically unknown. And every major oil company in America was completely dependent on them.

Today, it’s the exact scenario— except the scale is roughly 13,000 times larger.

That’s why I just vetted three of these companies in this exact same position.

But this time it’s not just oil that’s driving them higher…

Trump’s latest initiative could lead this sector to a major surge.

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1. The Congressional Budget Office (“CBO”) has been wrong about federal debt for decades. In January 2001, the agency projected that debt held by the public – the portion of government borrowing owed to outside investors, as opposed to money the government owes itself – would fall from 28% of GDP to roughly 5% by 2011. It came in near 66%. In January 2009, the CBO projected a decline to about 42% by 2019. The actual figure was 79%. In January 2017, it forecast 89% by 2027 – we’re already at roughly 100% today, a year and a half early. The February 2026 baseline now calls for 120% of GDP by 2036. Each of those forecasts assumed Congress would eventually stop spending… but of course, it never does.

2. Meanwhile… Washington’s interest bill just made history. U.S. net interest payments have reached 3.3% of GDP – the highest level ever recorded, surpassing even the early-1990s peak when 10-year yields sat near 8%. Today, 4-handle yields produce a worse interest burden than 8-handle yields did in the 1990s. Interest is now a bigger federal outlay than defense.

3. Oil inventory remains low. Closing the Strait of Hormuz has taken nearly 3 billion barrels of oil off the market, pushing inventories to historically low levels. In the U.S., the strategic petroleum reserve has dropped below 300 million barrels, the lowest level since 1983. As we’ve reported before, Saudi Aramco CEO Amin Nasser estimates that restocking depleted inventories will take 18 months, assuming a refilling rate of 2.1 million barrels per day once global supply chains are normalized.

Shares of tobacco and nicotine-pouch maker Philip Morris International (PM) have shined since we recommended them to Complete Investor subscribers: up 130%.