Hardware emerges as the preferred AI play over software
The bull case argued for hardware is that hyperscaler capital expenditure is rotating heavily into physical infrastructure, making hardware the ultimate 'picks and shovels' trade.
The argument
The hosts noted that while software is being penalized, hardware names are going vertical. They argued that because hyperscalers are borrowing heavily to build out data centers, the immediate, certain beneficiaries are the physical hardware providers rather than the software layer.
The thesis, stress-tested
✓ What validates it
- ✓Continued sequential growth in data center infrastructure revenue for major hardware providers
- ✓Sustained high capital expenditure guidance from major hyperscalers
▸ Risks discussed
- ▸Hyperscalers could eventually pull back on capital expenditures if margins compress too much
- ▸Hardware valuations may have reached extreme, unsustainable levels
Hear it yourself
"I don't know if Microsoft is being disrupted by AI, but I think it's maybe the closest proxy for, like, what OpenAI would trade if it were public. So the the three month correlation between the semis and software has collapsed to its lowest level in a decade from Sherwood."
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