Among AI crowd, some investors position for slower hyperscaler spending growth

• Active managers like Edmond de Rothschild and LFG+ZEST have cut semiconductor exposure and increased positions in hyperscalers (Amazon, Microsoft, Alphabet, Meta), betting that slower capex growth will benefit those footing the bills
• The Philadelphia Semiconductor Index has more than doubled over the past year despite an 18% drop from June peaks, while Bank of America's July survey found 82% of investors view semiconductors as the most crowded trade
• Growing constraints include hyperscalers shifting from cash to external debt financing (with bond demand ratios falling from 5x to below 2x), local opposition to data centers (New York imposed a one-year construction moratorium), and cash flows being 'almost completely drained by capex'

Market Summary: AI Spending Slowdown Signals Shift in Investment Strategy

Key Development

Some investors are repositioning portfolios anticipating a slowdown in hyperscaler AI infrastructure spending, potentially benefiting cloud giants while pressuring semiconductor stocks.

Critical Data Points

• UBS projections: Hyperscaler capex growth expected to reach $673 billion in 2024 (+76%), but slow dramatically to +25% in 2025 and just +6% in 2028
• Philadelphia Semiconductor Index: More than doubled over the past year but dropped nearly 18% from June peak
• Bank of America survey: 82% of respondents view semiconductors as the market's most crowded trade
• Morningstar data: Chip-focused funds attracted record $10 billion in net inflows through May

Companies and Sectors

Major hyperscalers mentioned: Microsoft, Amazon, Alphabet, Meta

Key semiconductor players: Nvidia, Broadcom, Micron, ASML, TSMC

Investment Strategy Shifts

Portfolio managers are cutting semiconductor exposure while increasing positions in:

• Hyperscalers (particularly Amazon)
• Liquid cooling, cybersecurity, and software firms
• Healthcare stocks
• Some using put options on semiconductor names

Market Risks

• Valuation concerns: Chipmakers viewed as expensive relative to expectations
• Financing pressures: Bond cover ratios fell from 5x (February) to below 2x (July)
• Infrastructure challenges: ~70% of U.S. data center projects face local opposition; New York imposed one-year construction moratorium
• BIS warning: Disappointment in returns could trigger sudden financing pullback

Outlook

While some analysts see periodic corrections as normal in tech booms, the mismatch between moderating capex growth and elevated revenue expectations for chip suppliers signals potential volatility ahead. Diversification into AI adoption beneficiaries recommended.