Just want to preface this by saying that this is my personal view of the current market and that I would be happy to hear you thoughts on what you think is coming next.
The AI trade appears to be entering its next phase. As well all know, the last leg of the rally was driven by the infrastructure layer (semiconductors, memory, networking, and data-center hardware) as investors priced in that unprecedented AI capex cycle.
However, Apple's recent lawsuit over alleged memory pricing practices has prompted the market to reassess the sustainability of elevated margins across parts of the semiconductor supply chain, while Meta’s continued acceleration of AI infrastructure investment reinforces expectations that compute capacity will continue to expand. Together, these developments support the view that supply-side constraints and pricing power may gradually ease as competition increases (Hello China?)
As the infrastructure buildout matures, I expect the market to shift its focus from AI capex to the tail end of the value chain with hyperscalers who have clear pathways to convert AI spending into sustainable revenue and earnings growth while also benefiting from compressing margins on the supply side.
The rotation is also extending into select software companies, where AI adoption can potentially drive revenue acceleration, and firms with differentiated data assets, such as Reddit, that can directly feed LLMs and be the next beneficiaries of the AI cycle on the monetization side.
With tech earnings approaching, I expect to see the start of big market rotations into the Mag7 and hyperscalers as the market shifts its focus to AI monetization. The market now wants to see tangible AI-powered products (whether on the consumer applications side, higher cloud consumption, digital advertising, enterprise software, and of course down the line the commercialization of physical AI such as robotics and autonomous systems)