Big investors shift AI investment focus from spending concerns to identifying long-term AI winners

Big investors hunt for tomorrow's AI winners as capex angst fades

MILAN, Aug 17 (Reuters) - The rally in AI-linked stocks that marked the latest earnings season has shifted the focus of the AI investment story from whether Big Tech's spending spree will pay off to the kind of companies that will deliver returns over the longer term, investors say. Results Microsoft (MSFT.O), opens new tab and Amazon (AMZN.O), opens new tab reassured markets that demand remains robust for the infrastructure that underpins artificial intelligence. Cloud growth is accelerating, and capacity constraints persist. The question for some of the world's biggest asset managers is which companies can sustain profit growth once those constraints ease. Many retain significant positions in semiconductor stocks even after a sector rout in July when doubts set in over whether AI spending was worth it and the challenge of rising Chinese competition. At the same time, they are adding exposure to the hyperscalers, or the biggest cloud service providers whose scale allows them to rapidly expand AI infrastructure to meet customer demands. "The hyperscalers are being recognised in this moment as companies that are likely to be very large beneficiaries of this AI paradigm shift," said Brian ⁠Barbetta, co-head of the technology platform at Wellington Management, which manages about $1.3 trillion in assets. "They remain core holdings in our portfolios, and we've in fact increased our positioning in many of these companies recently." BIGGEST SPENDERS' PERFORMANCE LAGS Shares in the four biggest AI capex spenders all lagged a 75% surge in the Philadelphia Semiconductor Index (.SOX), opens new tab. They also lagged a rally in Nvidia-backed CoreWeave (CRWV.O), opens new tab - up around 50% - and Nebius (NBIS.O), opens new tab - up over 200%. Known as neocloud providers, the companies rent computing power to customers, ranging from AI labs to businesses, and have capitalised on elevated spot pricing for scarce AI capacity. Janus Henderson's Bankers Investment Trust portfolio manager Richard Clode, however, said that over time hyperscalers were likely to benefit from their investments. "By later next year into 2028, we think you're going to start seeing these companies growing profits and cash flow faster than the incremental capex growth," he said. Clode said Amazon was one of his fund's biggest overweight positions. "Today's capex is tomorrow's sales," he said. A Reuters analysis estimates hyperscalers will generate about $340 billion more in annual operating cash flow in 2027 than in 2025, while capex is expected to rise by roughly $534 ⁠billion. NOT AS SIMPLE AS CHIPMAKERS VERSUS CLOUD PROVIDERS John Lamb, equity investment director at Capital Group, which manages about $3.6 trillion in assets, said investors should view AI as an expanding ecosystem. "It's not about whether chips are better investments than hyperscalers. It's about having both in your portfolio," he said, noting that data centres typically take 12 to 18 months to move from construction to producing revenue. "We're just starting to see from the latest quarterly earnings this inflection point." PICK YOUR WINNERS Clode says those companies that control both computing capacity and the layers that help customers deploy AI efficiently across different models, optimising cost and ⁠performance, will gain a competitive edge. He says companies such as Amazon, Microsoft and Google (GOOGL.O), opens new tab have more lasting advantages than neocloud providers because of their scale and customer relationships. Hyperscalers' valuations have compressed this year and remain below their post-pandemic peaks. Microsoft trades at about the highest multiple of 24.6 times forward earnings and Meta (META.O), opens new tab at the lowest of 17.6. BCA Research Chief U.S. Equity Strategist Noah Weisenberger said neocloud ⁠providers could be vulnerable if new computing capacity comes online and pricing normalises, given their heavier reliance on debt and high pricing. He said the hyperscalers' shift to a more capital-intensive business model could restrain valuations even if earnings remain strong. Yet, he recommends a long-hyperscalers, short-neoclouds trade. FEWER FUTURE WINNERS THAN PLAYERS TODAY Even for the winners, there are challenges. Swiss wealth manager LGF+ZEST ⁠CIO Alberto Conca estimates AI monetisation needs a fivefold to thirteenfold increase to justify current spending plans. Barbetta expects competition to narrow the field of AI winners as the market matures, with those companies with the broadest technology portfolios, deepest customer relationships and greatest control over their own infrastructure likely to pull ahead of more specialised rivals. "There are absolutely going to be fewer winners in the future than there likely are players today," he said. Reporting by Danilo Masoni; Editing by Amanda Cooper and Barbara Lewis Our Standards: The Thomson Reuters Trust Principles., opens new tab

Global Market: AI investment story shifts from spending to picking the winners

The AI investment debate is shifting toward identifying sustainable winners as spending accelerates. Hyperscalers, semiconductor firms and neocloud providers remain key beneficiaries, but investors increasingly prioritise profitability, valuations and infrastructure control. As computing capacity expands, companies with strong balance sheets, customer relationships and diversified technology ecosystems may capture the biggest long-term gains. The latest earnings season has shifted the debate around artificial intelligence investments from whether Big Tech's massive spending spree will generate returns to which companies are best positioned to capture the long-term gains from the AI boom, as per a Reuters report. Strong results from Microsoft and Amazon have reassured investors that demand for the infrastructure supporting artificial intelligence remains robust. Accelerating cloud growth and persistent shortages of computing capacity have reinforced expectations that AI-related spending will remain elevated. US MarketsPowered By As on 15 Aug 2026, 01:30 AM IST S&P 500 Top Gainers Copart31.61(7.55%) Advanced Micro Devices514.39(6.50%) Fox61.41(5.70%) Seagate Technology Hldgs973.44(5.65%) Gainers" S&P 500 Top Losers Coterra Energy32.56(-8.62%) Broadcom392.99(-5.94%) GoDaddy94.91(-5.56%) Applied Materials507.18(-5.12%) Losers" However, investors are increasingly looking beyond the current supply constraints. The focus is turning to which companies can maintain strong profit growth once additional computing capacity comes online and the market becomes less constrained. According to Reuters, many large asset managers continue to hold substantial positions in semiconductor companies despite a sector sell-off in July, when concerns emerged over the sustainability of AI spending and intensifying competition from China. At the same time, investors have been increasing their exposure to hyperscalers, the major cloud providers with the scale and infrastructure needed to expand AI capacity rapidly. Hyperscalers Gain Investor Attention The four largest AI capital spenders have underperformed the broader semiconductor sector, even as the Philadelphia Semiconductor Index has surged about 75%. By comparison, Nvidia-backed neocloud providers such as CoreWeave and Nebius have delivered much stronger gains. Their businesses involve renting computing capacity to AI laboratories and enterprises, allowing them to benefit from elevated prices for scarce computing resources. According to the report, some investors believe hyperscalers will eventually benefit from the enormous investments they are making today. As new data centres become operational and AI services generate more revenue, the largest cloud companies could see earnings and cash flow growth accelerate relative to capital spending. A Reuters analysis estimates that hyperscalers could generate around $340 billion more in annual operating cash flow in 2027 than in 2025, while capital expenditure is expected to increase by roughly $534 billion over the same period. AI Investment Is Becoming an Ecosystem Bet The investment opportunity is not necessarily a choice between semiconductor companies and cloud providers. Instead, investors increasingly view artificial intelligence as a broad ecosystem involving chips, data centres, cloud infrastructure, software and AI applications. Data centres generally take between 12 and 18 months to move from construction to revenue generation. This means the enormous capital spending reported by technology companies today could translate into stronger revenue and cash flows as infrastructure becomes operational. This dynamic could create opportunities across multiple parts of the AI supply chain rather than concentrating returns in a single group of companies. Investors Look for Sustainable Winners The next stage of the AI investment cycle could favour companies that control both computing infrastructure and the software layers that allow customers to deploy AI efficiently. Companies such as Amazon, Microsoft and Google have potential advantages because of their enormous scale, established customer relationships and ability to control significant portions of their infrastructure. Neocloud providers, meanwhile, have benefited from tight computing capacity and high prices. But investors are increasingly questioning whether those advantages can persist once additional computing capacity enters the market. Some strategists expect neocloud providers to face greater pressure if computing supply expands and pricing normalises, as per the report. Their reliance on debt and elevated valuations could make them particularly vulnerable to a decline in AI infrastructure prices. Valuations Remain an Important Consideration The valuation picture also favours a selective approach. Hyperscaler valuations have declined from their post-pandemic peaks, although significant differences remain across the group. Microsoft trades at roughly 24.6 times forward earnings, while Meta is valued at around 17.6 times forward earnings. The divergence suggests that investors are no longer treating every major technology company as an identical AI beneficiary, the report stated. For some investors, this has created opportunities to favour companies with stronger balance sheets, deeper customer relationships and more diversified technology portfolios. AI Boom Could Produce Fewer Winners The biggest challenge for investors may ultimately be identifying which companies can convert enormous AI investment into sustainable profits. Swiss wealth manager LGF+ZEST estimates that AI monetisation may need to increase substantially to justify current spending plans. That raises the possibility that the eventual financial winners could be far fewer than the number of companies currently benefiting from the AI investment boom. Investors expect competition to intensify as the market matures. Companies with broad technology portfolios, strong customer relationships and greater control over their own infrastructure could gain an advantage over more specialised competitors. The AI investment story, therefore, is moving into a new phase. The question is increasingly not whether companies will spend heavily on AI, but which businesses will turn that spending into durable revenue, stronger cash flows and long-term shareholder returns.