©Pixar, Disney
“To Infinity… and Beyond!” – Buzz Lightyear, Toy Story
This past month marked the release of Toy Story 5 – another critically acclaimed animated movie from Disney Pixar. The original Toy Story was released in 1995 and was a revolutionary movie at the time, because it was the first full length movie fully animated by computer generated graphics. In addition to being a culturally iconic movie, the initial success of the first Toy Story set the foundation for the Toy Story franchise to become one of the highest grossing franchises for Disney and Pixar over the past few decades. One of the main characters in the Toy Story franchise is a toy named Buzz Lightyear. When Buzz is first introduced in the movie he claims to be able to fly – a claim the other toys believe is impossible. Before attempting his first flight he utters the iconic catch phrase: “To Infinity… and Beyond!”
This catch phrase serves as not just one of the most iconic lines of the movie, but it also acts as the perfect metaphor for some of the major trends underlying financial markets as we enter the summer of 2026.
Artificial Intelligence Capital Cycle – To Infinity & Beyond
One of the most dominant themes in the market over the past 3 years has been the acceleration of the Artificial Intelligence capital cycle. Some of the largest and most profitable companies in the world are in an all-out race to develop and implement their A.I. models before their competitors gain an upper hand. This has unleashed John Maynard Keynes’s “animal spirits” and competitive dynamics within the technology and A.I. industry and is making the current episode one of the largest investment cycles in recorded history. Apt comparisons would include the 1820s-1830s canal building, 1860s-1870s railway boom, the 1990s telecom and internet boom, and the U.S. subprime mortgage lending boom in 2008.
One of the common characteristics of the current A.I. capital cycle with these previous referenced investment manias is the large-scale physical infrastructure and tangible assets that are being built.
The canal building and railway expansion across the United States in the 19th century had a marked impact on the landscape of the United States, just as the late 1990s telecom and internet boom brought us large cell phone towers and networks of fibre optic cables.
A.I. data centres are following a similar path and are being built as fast as the capital and physical resources can be brought together. Two great examples are Open AI’s Stargate Project in Abilene, Texas and xAI’s Colossus data centre in Tennessee.
OpenAI’s Stargate Project, Photo Source: OpenAI
xAI’S Colossus, Photo Source: NRD
The hyperscaler companies, as they are colloquially known, are the businesses that are investing the largest amount of capital to create data centres. These data centres house the computing power and network equipment required to run and operate the A.I. systems.
Closer to home, in the first week of July, Meta (not owned by Avenue at present) announced a new data centre project in Sturgeon County, Alberta. This project is expected to lead to 3,000 construction jobs and 300 full time jobs once completed. Alongside their $13-billion investment, Meta is investing in local infrastructure projects to help support the project.
Meta’s Alberta Data Centre, Photo Source: St. Albert Gazette
The levels of spending on A.I. infrastructure is approaching an amount we consider to be “Infinity & Beyond”. Based on a recent Goldman Sachs report total spending in 2027 for the industry could reach to above $1 trillion dollars.
One interesting way to examine the dramatic increase in spending is to examine the financial statements of the hyperscaler companies.
One of the metrics the Avenue team likes to examine is the Capital Intensity of a given business. We define this metric as the below equation:
Capital Intensity = Annual Capital Expenditures / Annual Revenue
Using this metric provides insight into how a company is allocating capital within the business. When the capital intensity ratio increases it suggests that a business is potentially investing substantially greater amounts of capital into their business relative to their revenue. When capital intensity is higher, it can often signal a future decrease in profitability because of the substantial increase in tangible assets being employed within the business. Past a certain level of investment, this higher level of capital spending is not sustainable over the long term. This creates the risk that this capital investment will not generate positive returns. The questions we then ask are:
- How is this investment being funded?
- What is the expected rate of return on this investment?
The below financial data from the hyperscaler businesses highlight the scope of the transition towards tangible asset heavy businesses. We use 2022 as a reference year, after which A.I. spending began to accelerate.
As jaw dropping as this level of spending has been, we can clearly witness that this spending is happening.
Within the Avenue portfolio we have been looking for businesses that could benefit from this level of spending on physical data centre infrastructure. Once such business was Encore Wire, an investment we held from 2023 to 2024 when it was acquired by the Italian company Prysmian Group.
Another one of our current investments that is benefiting from this level of A.I. spending is Toromont Industries, an Ontario-based Caterpillar dealer.
We believe Toromont is one of the most consistent and highest quality industrial businesses in Canada, that is benefiting both from fiscal spending on infrastructure, but also the buildout of A.I. data centres.
Early last year Toromont acquired AVL Manufacturing based in Hamilton, Ontario. AVL is a leading manufacturer of specialized back up power enclosures for hyperscale data centers.
This past month Toromont provided an update on their power systems business which highlights the growing demand for its products given this elevated level of spending on A.I.
We would define Toromont as a “good problem” in our portfolio. It is a business that we have owned since 2023 that has appreciated in value, but so has the valuation and expectations from investors. We will continue to monitor the business results closely to track its sensitivity to A.I. capital spending.
Government Fiscal Spending – To Infinity & Beyond
The other big theme that has existed for the past few years is the growing presence of government spending in the economy. This was a topic we covered at length in our 2025 year- end letter.
This trend has accelerated throughout the year as governments around the world become increasingly focused on how they can grow their domestic economies given the evolving global situation. Since 2019, the Avenue Team has taken a keen interest in these increases in government spending when the U.S. government debt levels first crossed the $20-trillion-dollar level.
Our expectation at the time was that given the growing level of spending on Social Security, Medicare, defense, and interest, we believed the level of U.S. federal debt would reach $40-trillion by the end of the 2020s. This was the insight that encouraged our overweight positioning in gold for the past several years.
We arrived at this conclusion based on the simple arithmetic that a number that compounds at 7% will double every 10 years. Because the major line items on the U.S. budget were growing at close to 7%, we thought it was safe to guess that the total level of debt would grow by this amount.
Alas, we were too conservative. We were optimistic that the U.S. would keep their spending under control. The U.S. total debt levels are set to cross the $40-trillion mark this year in 2026. If Government deficit spending continues at this pace of 7% growth per year, it is reasonable to expect that the level of debt will double again in the next decade. This would take U.S. federal debt levels close to $80-trillion by the middle of the next decade. Although these numbers seem extreme, the arithmetic says this is a strong possibility.
The Avenue Team has been concerned about the potential rise in long term interest rates for the past several years.
This concern is now being realized as 30-year interest rates across the world are at, or near, their highest levels in close to 20 years.
The persistent stickiness of interest rates remaining at higher levels is a function of these higher levels of government spending, the concerns of higher inflation, and the unwillingness of investors to purchase long term bonds.
It would be a very damaging scenario for the global economy if interest rates went to “Infinity & Beyond.”
Updates on the Avenue Portfolio
Throughout the quarter we made a few new additions to the portfolio including an Ontario-based copper and nickel producer, Magna Mining (TSX: NICU), along with a specialty consumer device protection company, Assurant (NYSE: AIZ), which we believe has an attractive growth profile and a compelling valuation.
One of the long-term holdings that we sold during the quarter was Tractor Supply (Nasdaq: TSCO). We originally purchased the business because of their dominant position in livestock feed and pet food, which we consider to be a stable and growing business. Despite this, the business has suffered from lower growth expectations due to the challenges in the farming community with regards to high gas and diesel prices negatively impacting farm incomes in 2026. This has put pressure on TSCO’s discretionary equipment and tools category and has led to a valuation reset on the business.
We continue to spend our research time looking for companies that meet our criteria of high-quality fundamentals and reasonable valuations.
We hope you and your family have a great summer.
Bryden Teich, July 2026
