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, with investors piling into semiconductor and infrastructure companies on the assumption that Microsoft, Amazon, Alphabet and Meta would keep accelerating data-center spending. YourDailyAnalysis frames the reversal in that trade as the real story: after two years of chips outperforming the hyperscalers that buy them, some of the market’s more active managers are now betting that relationship flips.
The spending trajectory behind that bet is specific and comes from a major sell-side estimate. UBS estimates hyperscalers’ capital expenditure will rise 76% this year to $673 billion, but will increase by only 25% next year and just 6% in 2028 – a deceleration curve steep enough that “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 semiconductor exposure he considers too expensive relative to expectations.
The positioning shift is concrete and shows up in specific portfolio moves from multiple managers, not just rhetoric. Bossard has increased exposure to Amazon and favors liquid cooling, cybersecurity and selected software firms, saying “we have a massive underexposure to semis right now”; LFG+ZEST CIO Alberto Conca has sharply cut memory-chip and equipment-maker positions while building hyperscaler and healthcare exposure, backing that view with put options on selected semiconductor names. YourDailyAnalysis treats Conca’s use of put options specifically as a stronger conviction signal than simply trimming a long position – buying explicit downside protection on chip names is a more active bet than passive underweighting.
The crowding data gives this contrarian positioning added context. 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; Bank of America’s July fund manager survey found 82% viewed semiconductors as the most crowded trade, with none reporting being short the sector. Your Daily Analysis reads that zero-percent short interest despite 82% calling the trade crowded as a meaningful asymmetry: the managers cutting exposure described above appear to be reducing longs and adding hedges rather than outright shorting, suggesting even the skeptics aren’t yet willing to bet directly against the sector’s continued strength.
The financing dimension adds a structural risk that goes beyond simple sentiment. After funding the initial AI buildout through their own cash, hyperscalers are increasingly turning to external financing, and Apollo Chief Economist Torsten Slok notes that cover ratios for Big Tech bond issuance – a measure of investor demand 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 that disappointment in returns could trigger a sudden pullback in financing and turn the capex boom into a protracted bust.
Not everyone is bearish, and the bull case rests on a specific historical parallel. Fidelity Investments’ Director of Global Macro Jurrien Timmer says demand for compute capacity remains robust and recent volatility may prove to be just another shakeout, comparing it to the periodic 20-30% corrections leading stocks suffered during the late-1990s internet rally before resuming their advance. “The AI story is well known, it’s ongoing, the earnings are still supporting the trend,” Timmer said, though he still favors diversifying into AI-adoption beneficiaries like financials alongside pure AI-construction plays.
Watch the bond-market cover ratios Slok flagged for whether they continue falling toward or below 1 time, which would signal genuinely constrained hyperscaler financing rather than just softer investor enthusiasm, and watch upcoming hyperscaler earnings calls for whether capex guidance for 2027 gets revised down toward UBS’s 25% growth estimate or stays closer to the more bullish buy-side forecasts Madeleine Ronner at DWS says remain “materially above” analyst numbers. YourDailyAnalysis views that specific gap between buy-side and sell-side 2027 capex expectations as the tension most likely to resolve this debate one way or the other over the next two quarters.
