The rising tide is no longer lifting all boats.
After two years of treating “AI” as a monolithic buying opportunity, global markets are fracturing. As soaring capex bills meet fears of software displacement, investors are drawing sharp new battle lines across sectors and regions. The trade has mutated from “Hope” to “Hard Questions.”
1️⃣ HARDWARE vs. SOFTWARE (The “Victim” Discount): The gap between the “picks ‘n shovels” and the “application layer” is widening into a chasm.
- The Enablers: Hardware makers powering data centers are holding up relative to peers.
- The Disrupted: Software stocks are being hammered on fears that GenAI is a threat, not a boost. ServiceNow (-12%), Salesforce (-9%), and RELX (-16.4%) have all plunged this week.
- The Signal: As Charu Chanana (Saxo) notes: “This divergence… is a signal that investors are differentiating between who enables AI and who may be disrupted by it.”
2️⃣ MAG 7 BREAKUP (The ROI Reality Check): The “Magnificent 7” is no longer a unified asset class. Investors have stopped rewarding massive capex announcements and started punishing them.
- The Punishment: Amazon shares slid 8.5% after announcing a 50% capex hike. Microsoft dropped 10% post-earnings.
- The Exception: Meta rose 10%, proving that the market will only tolerate spending if the path to monetization is crystal clear.
- The Verdict: “The market is no longer tolerating spending for spending’s sake,” says Mark Hawtin (Liontrust).
3️⃣ THE KOREA PIVOT (The Memory Trade): Capital is fleeing uncertainty for the one thing AI definitely needs: Memory chips.
- The Outperformer: South Korea’s KOSPI is up 20.8% YTD (vs. S&P 500 down 0.5%).
- The Winners: Samsung (+32%) and SK Hynix (+29%) are surging as the “Memory Mania” trade takes over from the “GPU trade.”
💡 ANALYST TAKEAWAY: We have entered the “Discernment Phase” of the AI cycle. The easy money is gone. The market is now rewarding the upstream supply chain (Korea/Memory) and punishing the downstream cost centers (Software/Capex Spenders). If you aren’t selling the chips or the memory, the market currently views you as a cost center or a casualty.
👇 Portfolio Managers: Are you rotating out of US Software and into Asian Hardware, or is the SaaS sell-off a buying opportunity?