The AI boom is real, but the story extends far beyond semiconductors, according to Scott Goodwin, cofounder and managing partner of Diameter Capital Partners, a firm managing about $25 billion in assets. Speaking on the "Goldman Sachs Exchanges" podcast, Goodwin emphasized that while AI infrastructure like data centers and chips have captured the spotlight, the true long-term value may lie in less obvious areas of the ecosystem. “This is a super-duper micro cycle that will outlast many investing careers,” Goodwin said, attributing the quote to his partner Jonathan Lewinsohn. He described AI as a transformative, long-term trend — a disruptive cycle that goes well beyond the current wave of capital spending. Diameter Capital has taken a different approach, focusing on where AI-driven demand creates hidden bottlenecks, particularly in credit markets. Instead of betting solely on chipmakers, the firm has looked for opportunities in the infrastructure that supports AI’s real-world deployment. In 2023, the firm made a strategic investment in the unsecured debt of a midsize telecommunications company. The rationale? As AI models shift from training to real-time use, data must move from data centers to end users — and that movement happens over commercial fiber networks, or “the pipes.” The bet paid off: the telco secured over $10 billion in new contracts with hyperscale cloud providers, and the debt has since recovered to face value. Diameter also made a major bet on a satellite company tied to wireless spectrum. After the company sold off key spectrum assets, the investment returned to par, further validating the firm’s strategy of targeting underappreciated infrastructure plays. Goodwin’s perspective comes at a time of growing concern about the sustainability of AI valuations. With massive spending on data centers and chips, some investors worry that the market may be overextending, especially in the high-risk areas of chip financing. He warned that some deals involve “residual risk” — the most uncertain and volatile part of chip financing, where investors bet on the long-term value of hardware that may become obsolete quickly. “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,” he said. “None of them have a clue.” The next phase of AI, Goodwin argued, isn’t about building more infrastructure — it’s about competitive disruption. The real winners will be companies that successfully adopt AI to outperform their peers, not just those with the biggest capital budgets. “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. “That is actually a longer cycle than the capex cycle, so that's really interesting.”