Traditional valuation metrics such as PEG assume growth is the primary driver of enterprise value. This assumption fails in constraint-bound systems, where supply scarcityânot demandâdetermines economic capture. The Scarcity-Adjusted PEG (sPEG) doctrine corrects this distortion by incorporating structural scarcity into valuation analysis. This doctrine provides institutional allocators with a more accurate lens for identifying durable winners in the AI infrastructure stack and other supply-constrained systems.
For decades, institutional capital has relied on growth as the primary signal of enterprise value creation. Metrics such as P/E and PEG ratio were built on a simple assumption: companies that grow faster deserve higher valuation multiples.
This assumption worked in demand-driven markets.
It fails in constraint-bound systems.
In constraint-bound systems, demand is not the limiting factor. Capacity is.
Capacity constraint is universal. It governs semiconductor manufacturing, energy production, infrastructure throughput, and cultural authority alike.
The companies and assets that control scarce capacity do not merely participate in growth. They regulate it.
This distinction separates participants from controllers.
Participants benefit from expansion.
Controllers determine the pace of expansion.
Controllers capture the majority of long-term economic value.
Growth does not create value.
Scarcity captures it.
This principle extends beyond physical infrastructure. It governs cultural and intellectual infrastructure as well.
In media, scarcity does not manifest as manufacturing capacity. It manifests as authority capacity.
Authority cannot be manufactured on demand. It must be accumulated over time through cultural relevance, trust, and institutional positioning.
During my career in media M&A, the most valuable assets were not those with the fastest short-term revenue growth. They were those that controlled irreplaceable authority within a category.
The acquisition of Billboard was not a bet on its current growth rate. It was a recognition of its structural position as the definitive authority in music charts and industry legitimacy. Billboard regulates recognition. It determines who is visible and who is not.
The acquisition of SXSW was not driven by its immediate financial growth. It was driven by its capacity constraint. SXSW occupies a singular position at the intersection of technology, culture, and innovation. It cannot be replicated because its authority is the product of decades of institutional accumulation.
New Yearâs Rockinâ Eve represents another form of structural scarcity. It occupies a fixed position in time and cultural ritual. That temporal authority cannot be expanded. It cannot be duplicated. It controls a moment that others cannot access.
These assets derive value not from growth alone, but from controlling scarce authority capacity.
Their scarcity enables durable pricing power, persistent relevance, and structural leverage.
This same principle governs infrastructure in the AI era.
The PEG ratio attempts to normalize valuation by dividing forward P/E by expected growth rate:
PEG = Forward P/E á Growth Rate
This framework assumes growth reflects market opportunity expansion.
In constraint-bound systems, growth reflects capacity availability.
When capacity is constrained, reported growth understates structural leverage.
The market systematically misprices infrastructure controllers because traditional valuation metrics measure participation, not control.
Assets that regulate throughput appear fairly valued or expensive under PEG analysis, while in reality they possess disproportionate influence over system expansion.
This distortion creates persistent structural mispricing.
The Scarcity-Adjusted PEG ratio corrects this structural blind spot.
sPEG incorporates scarcity as a primary valuation multiplier:
sPEG = Forward P/E á (Growth Rate à Scarcity Multiplier)
The Scarcity Multiplier reflects structural constraint strength, determined by factors such as:
⢠Irreplaceability of the asset or infrastructure
⢠Difficulty and timeline required for competitive replication
⢠Degree of supply concentration
⢠Control over system throughput capacity
⢠Dependency of downstream participants
This adjustment transforms valuation from a demand-centric model into a constraint-aware model.
It identifies assets that regulate capacity rather than merely consume it.
These assets capture disproportionate economic value over time.
Artificial intelligence is not constrained by demand. Demand for compute, memory, and model deployment is effectively unlimited.
AI is constrained by capacity.
Capacity constraints exist across each layer of the Four Forces of AI Power:
Compute capacity is constrained by GPU supply, controlled primarily by NVIDIA.
Fabrication capacity is constrained by advanced node manufacturing, controlled by TSMC.
Memory capacity is constrained by high-bandwidth memory production, controlled by SK Hynix and Micron.
Energy capacity is constrained by power generation and grid infrastructure.
These companies regulate system throughput.
They do not simply participate in AI expansion. They determine how quickly expansion can occur.
Traditional PEG analysis fails to capture this leverage.
Scarcity-adjusted PEG reveals it.
Memory providers, for example, may report moderate growth due to production constraints, yet their structural scarcity enables them to capture disproportionate economic value as capacity expands.
This dynamic is identical to authority-constrained media assets.
Just as Billboard regulates cultural visibility, memory providers regulate computational visibility.
Just as SXSW regulates cultural convergence, fabrication providers regulate technological convergence.
In both cases, scarcity governs value.
Institutional capital must shift from growth-centric valuation to scarcity-centric valuation.
Growth measures participation.
Scarcity measures control.
Assets that control scarce capacityâwhether semiconductor fabrication, high-bandwidth memory production, GPU compute, or cultural authorityâcapture the majority of long-term enterprise value.
The Scarcity-Adjusted PEG doctrine provides allocators with a framework to identify these assets before traditional growth metrics fully reflect their advantage.
This enables earlier, more accurate allocation into structurally dominant infrastructure controllers across both technological and cultural systems.
Scarcity, not growth, is the primary determinant of valuation in constraint-bound systems.
Capacity constraint is universal. It governs physical infrastructure, energy systems, semiconductor production, and cultural authority.
Traditional growth-based valuation metrics systematically understate the structural advantage of assets that regulate capacity.
The Scarcity-Adjusted PEG (sPEG) doctrine corrects this distortion by incorporating scarcity directly into valuation analysis.
Institutional allocators who recognize and apply scarcity-adjusted valuation will identify durable winners earlier and allocate capital more effectively in constraint-bound systems, including the AI infrastructure stack.
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