AI Spending Slowdown: Investors Pivot Away from Chipmakers

The parabolic rally in AI chipmakers has hit turbulence amid concerns over valuations and the sustainability of their bumper revenues, with some investors quietly positioning for a slowdown in the near-trillion-dollar spending boom. Over the past two years, investors piled into semiconductor and infrastructure companies on the assumption that Microsoft, Amazon, Alphabet, and Meta would continue accelerating data center investments. However, UBS estimates hyperscalers' capital expenditures (capex) will rise 76% this year to $673 billion, but only 25% next year and 6% in 2028. Active managers are cutting chip stock exposure and increasing positions in hyperscalers and software stocks, with sectors like financials and healthcare benefiting from AI adoption. Alexis Bossard, global equity portfolio manager at Edmond de Rothschild Asset Management, has reduced semiconductor holdings, calling them overpriced relative to expectations. Alberto Conca, CIO of LFG+ZEST, has slashed positions in memory-chip and equipment makers while building stakes in hyperscalers and healthcare, backed by put options on select semiconductor names. As hyperscalers shift from internal funding to external financing, questions arise over whether capital-market pressures may constrain spending growth.

Semiconductor Index Outperformance and Investor Sentiment

■The Philadelphia Semiconductor Index, despite a near-18% drop from its June peak, has more than doubled over the past year, outperforming the equal-weighted S&P 500 (up 11%) and Europe's AI-light STOXX 600 (up 8%).

■Bank of America's July fund manager survey found 82% viewing semiconductors as the most crowded trade, with none shorting the sector.

■Overcrowding in chip stocks has driven investors toward more balanced portfolio strategies.

Hyperscaler Stocks Lag Behind

■Amazon and other hyperscalers have sharply lagged the chipmaker rally, prompting investors to seek value in these underperforming names.

■Areas like liquid cooling, cybersecurity, and select software firms are gaining traction as AI adoption expands.

■Investors are diversifying away from over-reliance on chip manufacturers, favoring sectors with sustainable growth.

Defne Aydın's Note: This shift reflects investor concerns over the sustainability of AI spending. A slowdown in hyperscaler investments poses risks for the semiconductor sector while opening opportunities in adjacent industries. Markets may be entering a phase of more stable growth as investors adopt a balanced approach.