Jefferies Strategist Now Sees 'Massive Capital Destruction' as Base Case for AI Boom, With Share Going to Chinese Models
The base case turns bearish
Chris Wood, the Jefferies global head of equity strategy behind the widely read GREED & fear newsletter, has made "massive capital destruction in the U.S. with market share going to cheaper open-source Chinese large language models" his base case for how the AI investment boom ends, according to Bloomberg. Wood calls much of the spending "malinvestment."
The scale of the commitment is the problem. Wood estimates hyperscaler capital spending will reach roughly $695 billion in 2026 and climb to about $870 billion in 2027, with more of it financed by debt rather than cash flow. Alphabet raised its 2026 capital expenditure guidance by $15 billion, to a range of $195 billion to $205 billion, a move Wood cited as evidence that the spending race is accelerating rather than moderating.
The share shift underneath
While U.S. companies pour money into closed models, usage data is drifting the other way. OpenRouter data shows open-weight models, including Chinese systems such as Moonshot AI's Kimi K3, steadily gaining share of total AI usage, because they are far cheaper to run. "China has become a technological peer to the U.S. in AI," Wood argued, despite years of U.S. export controls on advanced chips.
Why it resonates now
Wood's call lands the same week Bain estimated AI must produce $6 trillion a year in revenue by 2031 to pay for its data centers, and the AI buildout was measured at 3.63% of U.S. GDP a year, larger relative to the economy than the railroad boom. The bull case requires the revenue to arrive; Wood's base case is that the spending arrives first and the losses follow.
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How this could hit the options market
A strategist of Wood's profile calling capital destruction his base case is a sentiment marker, not a trade signal by itself, but it gives institutional bears cover to size shorts. Watch put flow and skew in the biggest capex spenders, GOOGL, MSFT, META and AMZN, and in NVDA around any OpenRouter-style usage data or Chinese model release. The tell that the thesis is gaining traction would be flow into the China AI complex, BABA and BIDU, on U.S. weakness.
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