Morgan Stanley’s head of global technology investment banking says he’s keeping a close watch on one tech segment that’s holding up despite the recent market pullback.
In a new CNBC interview, David Chen says the rush to build AI capacity has opened the floodgates for previously overlooked hardware and infrastructure plays.
“Broadcom has been doing quite well. I would say just the semiconductor value chain in general. Semiconductor, but also just I think this massive surge in kind of AI compute has just created a ton of bottlenecks in the overall tech supply chain.”
Chen believes that chip constraints will continue to boost the balance sheets of hardware and infrastructure firms. He says he’s particularly looking at five “picks-and-shovels” plays.
“You’ve turned what used to be slightly less popular segments in tech into just massive star performers. So I think investors are kind of saying, ‘Hey, where are the real picks and shovels where I don’t have to necessarily bet on any given AI application?’ And so you have memory, hard drive suppliers, optical networking firms and semi-cap (semiconductor capital equipment).
Those are some of the biggest winners right now over the last 12 months.”
Looking ahead, Chen believes that hyperscalers will continue to pour hundreds of billions of dollars into AI spending next year, a potential move that could benefit hardware and infrastructure names.
“Looking at the current forecast of the Mag 7, I would say probably a similar level next year than versus this year.”
In February, the hyperscalers released their AI spend guidelines for this year, amounting to about $655 billion, with Amazon leading the pack, allocating $200 billion in CapEx.
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