Investors Abandon AI Boom Stocks for Infrastructure Companies

Investors are fleeing the 'Magnificent 7' tech stocks and crypto due to concerns over the costs of the AI arms race. These companies, which include Microsoft, Meta, Tesla, Amazon, Nvidia, Alphabet, and Apple, have seen their stock prices plummet in recent months. Microsoft is down 33% from its highs, while Meta has dropped 28%. Bitcoin, the largest cryptocurrency by market capitalization, is also under pressure, trading about 50% below its October peak.

The issue is not that investors are giving up on AI entirely, but rather they're shifting their focus to companies that provide the infrastructure for AI growth. These include chipmakers and memory-chip producers, which have seen significant gains in recent months. For example, Sandisk has surged roughly 800% this year, while Micron Technology has gained about 230%. The VanEck Semiconductor ETF is up 67%, and the Global X Artificial Intelligence & Technology ETF is up about 140%.

The rotation towards AI infrastructure companies is driven by concerns over the rising costs of developing and deploying AI technologies. The 'Magnificent 7' companies are expected to spend a combined $725 billion on capital expenditures this year, a 77% increase from last year's record level. Free cash flow is no longer fully funding these ambitions, with Alphabet, Amazon, and Meta collectively borrowing some $93 billion last year.