By Danilo Masoni
MILAN, July 17 (Reuters) - The parabolic rally in AI chipmakers has run into turbulence amid concern about valuations and the sustainability of their bumper revenues, with some investors quietly positioning for a slowdown in the near-trillion dollar spending boom that could provide a boon to the hyperscalers footing the bill.
For most of the past two years, the opposite trade prevailed: investors piled into semiconductor and infrastructure companies on the assumption that Microsoft,
Amazon, Alphabet and Meta would keep accelerating spending on the buildout of data centers.
But that spending now looks set to slow, with UBS estimating hyperscalers' capex will rise 76% this year to $673 billion, but will increase by only 25% next year and just 6% in 2028.
Some active managers have already cut their exposure to chip stocks and are adding shares of hyperscalers themselves, which have sharply lagged the rally in chipmakers. They are also buying into software stocks and sectors expected to benefit from AI adoption, such as financials and healthcare.
"Once they stop increasing their capex, it will definitely be a relief for hyperscalers and a negative signal for the semi industry," said Alexis Bossard, global equity portfolio manager at Edmond de Rothschild Asset Management, who has already cut exposure to semiconductor stocks, which he believes have become too expensive relative to expectations.
The Philadelphia Semiconductor Index, whose top holdings include Nvidia, Broadcom, Micron, ASML and TSMC, has more than doubled over the past year, even with a near-18% drop from its June peak, compared with an 11% rise in the equal-weighted S&P 500, or an 8% gain in Europe's AI-light STOXX 600.
Bank of America's July fund manager survey found 82% viewed semiconductors as the most crowded trade and none reported being short the sector.
The question arises over how to position if AI spending remains strong, but no longer accelerates fast enough to support the expectations embedded across the AI infrastructure trade.
Bossard has increased exposure to Amazon and favours areas such as liquid cooling, cybersecurity and selected software firms. "We have a massive underexposure to semis right now."
LFG+ZEST CIO Alberto Conca has sharply cut positions in memory-chip and equipment makers, while building positions in hyperscalers and healthcare stocks, and has backed that view by buying put options on selected semiconductor names.
After funding the initial AI buildout through their own cash, hyperscalers are increasingly turning to external financing, prompting questions over whether capital-market pressures may eventually constrain spending growth.
The corporate debt market has absorbed billions in Big Tech issuance this year and investors have, until recently, lapped it up.
Apollo Chief Economist Torsten Slok notes that cover ratios, a measure of investor demand for the bonds on offer relative to supply, have fallen to below 2 times in July, from nearly 5 times in February.
In June, the Basel-based Bank for International Settlements warned disappointment in returns could trigger a sudden pullback in financing and turn the capex boom into a protracted bust.
"Cash flow is starting to be almost completely drained by capex," Conca said, arguing hyperscalers will become more disciplined on spending growth.
Against that backdrop, Empirical Research highlights a growing mismatch between moderating capex growth and lofty revenue expectations for chipmakers and other suppliers of AI infrastructure, implying that something will have to give.
"Either the capex trajectory of the hyperscalers will be upgraded again, or the revenue growth pencilled in for their suppliers will have to come from elsewhere," it said.
Madeleine Ronner, senior portfolio manager at DWS, expects earnings-season commentary from hyperscalers to remain supportive of further investment.
"The surprise would be if it's not like that," she said, also noting that buy-side forecasts for 2027 spending remain materially above analyst estimates.
DWS has taken some profits in semiconductor stocks after their strong run but remains overweight the sector, and certain funds have added industrial and electrical equipment exposure following the pullback.
Growing local opposition to U.S. data centers could also stall spending growth. Empirical estimates about 70% of projects face some degree of pushback.
New York on Tuesday became the first U.S. state to halt construction of large new data centers, imposing a one-year moratorium as concerns grow that the facilities driving the AI boom are raising power costs, straining water supplies and burdening local communities.
Still, investor appetite for AI infrastructure remains strong. Morningstar data show chip-focused funds attracted record net inflows of $10 billion through May.
Fidelity Investments' Director of Global Macro Jurrien Timmer says demand for compute capacity is robust and recent volatility may prove to be just another shakeout.
He compared recent pullbacks to the periodic corrections seen during previous tech booms, noting that leading stocks during the late-1990s internet rally suffered repeated 20-30% declines before resuming their advance.
"The AI story is well known, it's ongoing, the earnings are still supporting the trend," Timmer said.
Even so, he believes investors should diversify, noting that beneficiaries of AI adoption such as financials may increasingly matter alongside beneficiaries of AI construction.
"I want to participate in the boom, but I also want to protect myself in case that boom is overdone," Timmer said.
(Reporting by Danilo Masoni; Editing by Amanda Cooper and Susan Fenton)
