AI hardware spending faces crowded trade risks
The guest cautioned that the massive capital expenditure boom driving AI hardware stocks has turned into an overcrowded momentum trade detached from long-term profitability.
The argument
While acknowledging that companies like Micron and AMD will see high near-term spending, the guest expressed skepticism about the ultimate profitability of AI applications, calling the current market dynamics silly.
The thesis, stress-tested
✓ What validates it
- ✓A sharp valuation correction in leading AI hardware stocks
- ✓Earnings reports showing decelerating revenue growth or margin compression for hardware suppliers
▸ Risks discussed
- ▸Continued massive capital expenditure guidance from hyperscalers could sustain momentum
- ▸AI applications could monetize faster than expected
Hear it yourself
"able to make hay one way or another. They do have a lot of credit out there. We credit my friend, Mara, Rodriguez Voladares, who was talking about how much private credit exposure the banks have and the loss rates, which are quite eye opening. They were almost double digits last year. And when you see a portfolio of credit that has a double digit loss rate, that means it's like, you know, a single b, triple d kind of rating, that gives you a sense for the quality of these loans. They're pretty poor. So, you know, the lending of banks to non bank institutions, private equity funds, etcetera is definitely subprime."
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