Key insights
- The current AI spending fervor, particularly in memory chips, is unprecedented and comparable to historical large-scale national buildouts like the WWII effort. This massive investment by tech giants, including hyperscalers and Mag 7 companies, is driving the tech and AI trade. The spending is not confined to a few firms but is reverberating across the ecosystem, from GPUs to data centers and energy infrastructure, as companies race to gain a competitive edge and see early fundamental returns.
Zacks Investment Research senior stock strategist Andrew Rocco comments on the heightened spending seen across the AI trade — particularly in the memory chip landscape amid shortages — comparing to prior buildouts in American history.
You look at sort of just the the fever around memory chip names, right? The moves they have made. We're talking about trillion dollar names now, right, Andrew? Do you look at that broadly and say, that makes sense or no, we've gone off the rails. What do you think?
We've never seen this kind of spending ever occur. We've always talked about over the last decade or so how the large cap tech stocks, whether it be Meta or Microsoft or Apple, that if if you recall, the argument was that, man, these stocks have so these companies have so much cash on hand, what are they going to do with that cash? Of course, in the case of Apple, they reinvested it by buying their own stock. It did turn out from a share price perspective to be a good move, but now these other large cap tech companies, the hyperscalers and the the Mag 7, they're spending this on AI and really the only thing I could compare it to, uh, from a money perspective, it's probably more is the railroad buildout or the World War II build out to kind of arm our our military. Uh from a GDP perspective, this is really the only thing that that comes close. So that's what we're seeing, that's what's driving the tech and the AI trade and it's not just going into a handful of companies, it's reverberating out. You're going to need the data center, within the data center, you're of course going to need the Nvidia GPUs. There's a reason Nvidia is the world's uh highest market cap company. And then it it just trickles on from there. You need the energy for the data center. So that's what's driving tech and the AI trade is these companies are seeing returns already from a fundamental perspective and they don't want to fall behind in this race. So they they'd rather go for it and and lose the race than than sit on the sidelines. At least that's what the spending is telling us so far.