Banking giant Citi says it is looking at two investment plays as the market punishes Big Tech for going all-in on AI.
In a new Bloomberg interview, Citi’s head of equity trading strategy, Stuart Kaiser, says the market’s reaction to large capital expenditure announcements has changed in recent quarters.
Looking back to last fall’s earnings season, Kaiser points to Meta as an early signal.
“I mean, I think back in sort of October and November earnings season, you started to see a little bit of a change in this reaction function. Meta back then was the key one, where they announced this very large CapEx spending program and the stock sold off. And that was probably the first time in the last couple of years that a company had been punished for spending more on AI. And look, lo and behold, this quarter, we saw that repeat with a number of companies.”
According to Kaiser, the key difference is whether companies can show a return on that spending, noting that Meta got rewarded for showing ROI on its AI spend.
“This CapEx spending is undergoing an audit or some other form of very invasive examination. But Microsoft and Amazon were both kind of punished for more CapEx spending this quarter.”
Kaiser adds that investors are now shifting within the tech trade itself. Instead of looking at the companies writing the biggest AI checks, the market is leaning toward those benefiting from the buildout.
“So I think what you’re really seeing is within the tech trade, the shift has moved kind of away from the spenders and to the beneficiaries of that spending. We like power generation and the AI data center buildout as a way to express that. And then more broadly, to your point, you’re also getting a little bit of a rotation out of growth into these cyclicals.”
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