Deep Sail Capital Q1 2026 Investor Letter
Deep Sail Capital reported a -17.8% net return in Q1 2026, underperforming its benchmarks due to late-quarter drawdowns in long positions, though performance rebounded 20.4% in early Q2. The fund attributes market dynamics to an accelerating AI infrastructure supercycle, with U.S. hyperscalers projected to spend $660–690 billion on capex in 2026. Credit market stability is now tied to sustained AI demand, while supply constraints in energy and materials pose risks. The long portfolio struggled, but the short book saw limited gains due to prior quarters' strong performance.
- ▪Deep Sail Capital returned -17.8% net of fees in Q1 2026, underperforming both the Russell 2000 and Russell Mid Cap Growth Index.
- ▪By 2026, the five largest U.S. hyperscalers are projected to spend between $660 billion and $690 billion annually on capex, more than four times the U.S. energy sector's investment.
- ▪The fund's long portfolio declined due to late-March drawdowns in stocks like Credo Technology and AmpliTech Group, despite expectations of recovery in Q2.
- ▪Credit market stability is now closely linked to sustained demand for AI compute, with economic risks if use cases or demand falter.
- ▪AmpliTech Group is positioned at the center of the Open RAN shift in 5G, offering about 30% cost savings over traditional infrastructure.
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