Since ChatGPT was introduced in late November 2022, the AI trade has been mostly focused on the Magnificent-7, especially the big cloud companies, i.e., the “hyperscalers” (chart). For a while, they were all viewed as AI dominators until DeepSeek was released by a Chinese software company in late January 2025. Increasing confidence that US Large Language Models (LLMs) would remain competitive revived the Mag-7’s stock market performance during the spring and summer of 2025.
Then, late last year, a growing concern that the AI boom was turning into an AI capital spending arms race among the Mag-7 was heightened by Michael Burry’s warnings that the hyperscalers’ massive AI capex might prove unprofitable for various reasons. But those concerns have diminished in response to significant beats by the hyperscalers during the Q1 earnings season in April. Their cloud earnings continue to soar, confirming that rapidly growing demand for “compute” might justify all the AI capital spending after all.
Since late last year, investors have come to realize that while there may be uncertainty about the profitability of hyperscalers’ AI capex, there is no doubt that their massive capex will boost demand for semiconductors and related AI components. As a result, the prices of ETFs investing in semiconductors soared to new record highs in April (chart).
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