The Zhitong Finance App learned that at a time when US tech giants are collectively recovering, Ben Reitzes, head of technology research at Melius Research, advised investors to avoid large-scale cloud service providers such as Alphabet (GOOG.US, GOOGL.US), Meta (META.US), and Amazon (AMZN.US) because these companies failed to generate significant cash flow. In an interview, he said, “I'm still not optimistic about hyperscale data center operators for the simple reason: they can't generate real valuable cash flow. Who cares? Buy a chip company.”
On Thursday, the technology sector of US stocks was sold off. The total market value of the “Big Seven” stocks evaporated by nearly 800 billion US dollars in a single day, and the Nasdaq 100 index fell 1.9%. Among them, Google's parent company Alphabet fell 7%, and Tesla plummeted by about 15%, all of which recorded the worst single-day performance in more than a year. These two companies have just released financial reports. Huge capital expenditure has raised concerns in the market, and negative free cash flow is facing strict scrutiny from investors. However, chip stocks such as Micron Technology (MU.US) bucked the trend and strengthened.
Reitzes believes investors should pay less attention to growing capital expenditure and pay more attention to margin pressure brought about by these investments.
He stated, “The increase in capital expenditure is largely in line with expectations. I think this is good news for the chip industry.”
Reitzes explained that Alphabet's recent weak profit margins are directly due to cloud computing costs, data center expansions, and accelerated capital expenditure.
He warned that the “profit margin theme” for hyperscale data center operators is just beginning and will soon affect Meta, Amazon, and Microsoft (MSFT.US) as they are about to release earnings reports.
Despite investor anxiety and falling tech giants' stock prices, Reitzes believes tech giants will continue to invest heavily in AI infrastructure. He pointed out that these companies are now facing too much risk to back down.
Reitzes stressed that Meta is the hyperscale data center operator he is most closely following, and is concerned about the company's changing AI strategy.
“Their strategy seems to be changing every day, or no one knows it at all,” Reitzes said. He hopes these companies will soon be able to turn their huge capital investments into clear and tangible income.
The internal rift in the AI bull market widens: chip stocks rise, cloud giants fall
Since this year, the AI circuit has shown extreme structural differentiation: chip “shovels” with core production capacity and supply to the AI industry have emerged from a strong market, while technology giants “shovels” that continue to make large purchases of computing power and lay out AI infrastructure have been sold off by market capital. Since this year, the Roundhill Magnificent Seven ETF (MAGS), which tracks America's Big Seven, has fallen 4%, while the Philadelphia Semiconductor Index (SOX) has risen 74% over the same period.
The internal fragmentation of AI-themed stocks has attracted attention. J.P. Morgan strategists warned that the current pattern of “strong chips and weak cloud giants” is highly similar to the end of the internet bubble in the 1990s.
J.P. Morgan strategist Jason Hunter said in a report on Wednesday that if hyperscale cloud computing giants are unable to break through key technical resistance levels while the semiconductor sector remains hovering below the key resistance level, “initially it was just a rotation within the AI theme, which may evolve into a more worrying overall collapse.”