Gavekal's Louis-Vincent Gave Calls AI Capex an "Epic Capital Misallocation" as China Enters the LLM and Chip Markets at Once
Interview with the Gavekal co-founder and CEO, October 18, 2026
The AI buildout is a Ferrari problem
Louis-Vincent Gave, co-founder and CEO of the Hong Kong-based research and asset management firm Gavekal, argued that the AI infrastructure cycle will not earn its cost of capital. Asked how the capex could be justified given falling token prices and a wave of AI IPOs, he answered bluntly: "They won't. Look, I think it's just that simple where we're in the front of an epic capital misallocation."
His framework is an automotive analogy. OpenAI, Anthropic and the chipmakers have been racing to build the best Ferrari, while the market has priced the world as if it will buy 80 million of them a year. "Most people can't afford a Ferrari and most people only need a BYD to go pick up the bread," he said. Gave added that the premise behind data center spending, that AI must be consumed through hyperscale facilities, is already eroding. Gavekal, a firm of roughly 100 employees, spent about $23,000 on a high-end server and now runs its AI work in-house on downloaded open models. He said Apple and Microsoft are both pitching roughly $10,000 mini servers to small and medium-sized businesses that can run "pretty much any AI you want." Private banks and other firms that do not want to share client data are natural buyers.
Gave was dismissive of the aggregate spending forecasts. He cited McKinsey's estimate of $6.5 trillion on AI data centers over the next four years and called it "fanciful." He said the thesis "started to come apart this summer" and went further: "The AI thing has stalled. The AI thing is over." That is a strong claim, and the interview offered no data on current capex run-rates or hyperscaler guidance to support it. It is a framing from a macro investor, not a bottom-up demand analysis.
China entered two rooms this summer
Gave's core argument is that China moved on both layers of the AI stack at once. On large language models, he said, "everybody realized there'll be no money to be made on LLMs ever because China's giving it away for free. And how do you compete with free?" He noted that Western frontier labs can only answer by being the best, which matters only if customers need the best.
On semiconductors, he pointed to reports that Apple is considering CXMT memory chips instead of relying on the existing supply chain. He called that "a super important signal" because it shows that for an iPhone, "the next thing down is good enough," and China is producing it at a fraction of the price. He acknowledged that Chinese chips are still behind the US at the high end. His longstanding line is that "when China enters a room, profits walk out," and he believes the pattern is now repeating in AI.
He also claimed that four-fifths of the world's tokens are now essentially traded in China. He used that to argue that the 2018 US decision to block semiconductor and equipment sales, aimed at halting China's AI progress, has been "an abject failure by any measure." He said the cat is out of the bag: "Nothing is going to stop anyone from downloading Qwen if they want to download Qwen and run it on their own PCs," unless Washington bars US corporations from doing so.
Bonds: a structural bear market with a tactical rally
On rates, Gave said the bond market is the victim in Agatha Christie's Murder on the Orient Express, stabbed by 12 different people. He listed fiscal incontinence, runaway deficits, loose monetary policy, protectionism, war and AI. The AI factor came with a notable statistic: this year, hyperscaler demand for debt has been equivalent to 70% of US budget deficits, "which is something that nobody had on the cards just a year ago." In effect, he said, a second deficit appeared out of nowhere and is crowding out government borrowing.
His stance is split by time horizon. Near term, he is tactically bullish because markets are pricing too many Fed and ECB rate hikes, and a repricing should produce a relief rally. Structurally, "we are still in a structural bear market on bonds." He would not buy duration for three, five or 10 years "as things stand, absolutely not." Catalysts for a turn would be AI capex plans failing, which he considers the most likely, a re-embrace of China and rejection of protectionism, or an end to the wars. He dismissed the debate over Fed leadership and forward guidance as "a lot of noise," saying another chair would leave the market in the same place because the war, protectionism, deficits and AI spending would all still be there.
Inflation may force the West back toward China
Gave described himself as possibly "delusional" for expecting a thaw in US-China relations, but he laid out a fiscal logic. Governments facing rising funding costs can cut spending, crush AI data center investment, or embrace China as the world's one deflationary force. He considers the first unattractive to politicians and the second a threat to equity markets, which leaves the third as the path of least resistance. AI, he said, has contributed to inflation rather than reversing it. He cited Canadian Prime Minister Mark Carney's move to buy Chinese cars as the template and expects others, including the US, to follow once inflation sits at 3.5% to 4%. The window in which the West could "afford to be anti-China," he said, is "closing very, very quickly" with each rise in bond yields.
The sea lanes and the end of the post-war financial architecture
On the Iran conflict and the disruption to Hormuz, Gave argued that the global financial system rested on three assumptions that have now broken. The first was that US Treasuries are deep enough to be converted into any needed commodity on short notice, as Thailand did after the 2004 tsunami and Japan after Fukushima. The second was that the US controls the world's sea lanes, whereas the Black Sea, the Red Sea and the Persian Gulf are now difficult or risky to transit. The third was that the US is a benevolent hegemon with an interest in preserving the trading system. He said US voters who back Donald Trump are choosing a president who openly calls the system a bad deal.
The military shift he emphasized is cost asymmetry. "Protecting billion dollar ships with million-dollar missiles against drones that cost $10,000. The maths don't add up." Air control, historically the preserve of the country with deeper pockets, is now cheap to contest, which leaves naval assets exposed. He said this is not "President Trump's fault per se"; warfare itself has changed.
Positioning: heads I win, tails I don't lose too much
Gave said he has not seen this many binary risks in almost 30 years of investing. He listed the Middle East, the bond market, the French fiscal crisis, weak insurance company balance sheets and the China slowdown. He therefore prefers asymmetric trades and puts AI semiconductors, including Samsung and TSMC, in the "too hard" bucket. In his words, they could double again or fall 50% in three weeks.
He favors Latin American bonds, equities and currencies, which he sees in a structural bull market tied to commodities and political change across the region, including Brazil. He also likes Asian currencies and emerging market debt, which he calls an obvious momentum and carry trade if Fed and ECB hike expectations are scaled back. He recommends energy as portfolio insurance. Energy was the best-performing S&P 500 sector over the past five years and is only 3.5% of the index, he noted, while the West heads into winter with record-low inventories and two unresolved wars.
He was candid that his China "new champions" position, which includes BYD, Haier, Xiaomi, Huawei and CATL, has "crushed my performance" this year. He said these stocks became funding sources for the semiconductor trade, as investors sold them to buy Samsung, SK Hynix and TSMC. CATL, which he called "the best battery producer in the world bar none," is down by a third. He still considers the group attractive on a three-, five- and 10-year view.
China's long game and the investor's own psychology
On Beijing's aims, Gave said Western investors underestimate the weight of history. The leadership generation that endured the Cultural Revolution prizes self-reliance in food, energy and industry, and social stability at almost any price. This, he said, helps explain China's chronic overinvestment, which comes from financially repressing savers and recycling their money into favored sectors. He expects the pressure to ease as the population ages, noting that "throwing stones at the police is a young man's game." He sees China's share of global GDP, currently about 18%, returning toward the roughly one-quarter it held in the 1700s, and rejects both the "China takes over the world" and "China implodes" camps. He also said Germany's infrastructure has deteriorated markedly, arguing that part of its lower debt-to-GDP ratio comes from underinvestment.
His closing advice to investors was to know themselves, since the brain "is always trying to trick us" into believing we are better investors than we are. He recommended keeping an honest investing diary to identify repeated mistakes, and cited Daniel Kahneman's Thinking, Fast and Slow and C. Northcote Parkinson's East and West.