The Tech Trade is Getting More Segmented

The latest earnings reports from Nvidia and Marvell Technology present a mixed picture: Nvidia’s shares are soaring after a strong quarter, while Marvell’s are plummeting despite solid results. However, these numbers reflect more than just individual companies’ fortunes – they indicate seismic shifts underway in the tech landscape.

The AI gold rush is in full swing, with investors scrambling to invest in companies promising to accelerate innovation and disrupt traditional industries. This phenomenon bears some resemblance to the dot-com bubble of the late 1990s, where hype and speculation drove stock prices to unsustainable heights before reality set in.

This time around, it’s not just about individual stocks or sectors; it’s about the broader tech trade itself. With AI demand remaining high, companies are racing to stake their claim on the market, often with little regard for long-term viability. The hyperscalers – Amazon, Microsoft, and Google among them – are signing massive financing deals to push into the AI build-out, but at what cost?

Chad Morganlander, senior portfolio manager at Washington Crossing Advisors, notes that “there will be pockets of the market where unprofitable projects eventually have to pay the price.” The question is, who’ll be left holding the bag when the music stops? Will it be investors who poured billions into these unproven ventures, or will it be companies themselves, forced to confront the harsh realities of their own hubris?

The AI acceleration narrative may be enticing, but it’s not a solution for every tech company. Alphabet, for example, is shedding billions in value as investors grow increasingly cautious about Google’s edge in AI.

Meanwhile, Nvidia is reaping rewards from being at the forefront of the AI revolution. However, this isn’t a zero-sum game: companies like Marvell are struggling to keep up with the pace of innovation, and the broader tech trade is becoming increasingly segmented.

Ellen Hazen, chief market strategist and portfolio manager at F.L.Putnam Investment Management, warns that “the biggest risk is whether or not the trillion dollars in hyperscaler capex next year can actually be spent.” Labor shortages, permitting delays, NIMBYism on the rise, and component shortages threaten to derail these massive projects, leaving some companies struggling to emerge from this gold rush unscathed.

For tech investors, it means being prepared for a reckoning – when the AI acceleration narrative finally wears off, and the market discriminates between winners and losers. It also means recognizing that this isn’t just about individual stocks or companies; it’s about the broader tech trade itself, with its inherent biases towards disruption, innovation, and growth at all costs.

As we hurtle towards a future where AI is increasingly integrated into our daily lives, one thing is certain: not everyone will make it out alive. Will investors learn from past mistakes, or will they fall victim to the same hubris that drove the dot-com bubble? Only time will tell, but for now, the AI gold rush remains a cautionary tale about the dangers of chasing hype in pursuit of profit.