Tata Communications' AI Super Highway: How the move may pan out, analyst decodes

Reacting to the broader rush by companies to build AI highways, data centres and transmission infrastructure, Dalal said he is “not very enthused” when companies unveil grand AI investment plans without spelling out how those assets will generate returns. In his view, the market is at risk of rewarding narrative before business economics are fully visible.

That caution is especially relevant at a time when AI has become the latest corporate catchphrase. While the long-term demand case for compute, connectivity and data infrastructure appears strong, Dalal argued that the near-term burden of spending could outweigh the promise of future growth.

The balance-sheet risk behind the AI story

Dalal’s concern is rooted in the mechanics of heavy infrastructure investing. “When you’re putting in this kind of CapEx, in the initial days, you’re never able to run at full capacity,” he said, warning that such spending can hurt profitability for the first two to three years while also increasing leverage.

He noted that reported numbers may initially appear stable because companies can capitalise interest and depreciation, but the real test begins once assets are commissioned. At that stage, actual costs rise sharply, and if revenue ramps up slower than expected, profits can come under pressure.

Lessons from steel, cement and the dot-com era

To make the point, Dalal drew parallels with earlier investment cycles in sectors such as steel and cement, where large expansions often weighed on stock performance as returns on equity and capital fell. His warning also extended to market psychology.

“AI is the new hype word,” he said, comparing the present enthusiasm with the dot-com bubble, when companies were re-rated simply for being associated with a fashionable theme. The implication is clear: investors should not confuse thematic relevance with shareholder remuneration.

Where the smarter AI play may lie

Dalal suggested that ancillary suppliers such as fiber and wiring companies may offer a cleaner way to participate in the buildout, since they benefit regardless of which operator ultimately wins the AI infrastructure race. But even there, he urged restraint, saying valuations in some of these names have already become “absurd.”

For investors, the takeaway is not to dismiss AI, but to demand sharper answers on pricing power, utilization, paying customers and return on investment before buying into the story.