The AI stocks are viewed as a defensive trade amid worries about inflation, oil and slow growth, which are weighing on broader risk appetite, according to Goldman Sachs Group Inc. (NYSE: GS).
Investors Seek Safety In AI Stocks
According to a Monday report from Business Insider, investors are favoring hyperscalers and AI-focused stocks, which may now be seen as more insulated from the issues that could soften the economy.
Goldman's Shawn Tuteja said, "We're seeing this massive rotation back into the hyperscalers, back into the AI names as people view that story as more inelastic demand and able to withstand the things that the consumers aren't."
This is a sharp reversal in the trend seen at the start of the year, when traders flocked into economically sensitive areas like homebuilders, industrials, and consumer stocks on expectations of easing inflation, potential Federal Reserve cuts and a stronger cyclical backdrop.
Capital Spending Fuels AI Growth
Goldman pointed to strong rebounds in major tech benchmarks, with the Nasdaq Index rising 26% from its March low and the Philadelphia Semiconductor Index gaining more than 60% over the same stretch.
The move has been driven by corporate spending rather than speculation, with hyperscalers planning to spend nearly $755 billion in capital expenditures this year, up 38% year over year.
The stocks such as Alphabet Inc. (NASDAQ: GOOGL) (NASDAQ: GOOG), Microsoft Corp. (NASDAQ: MSFT), Amazon.com Inc. (NASDAQ: AMZN) and Meta Platforms Inc. (NASDAQ: META) have collectively committed to spend roughly $710 billion in capital expenditures and increased their guidance in the latest earnings call.
Is The AI Infrastructure Boom Ahead?
The report said that the pace of investment is accelerating the market's focus beyond chips, data centers, memory and optical components, as investors hunt for the next area that could benefit from AI buildouts.
"Our baskets team sees the next spin-off or the next iteration of the AI equipment trade being within liquid cooling," Tuteja said, indicating technologies that could significantly cut the need for energy to cool the data centers.