Dan Ives, partner and senior managing director over at Yorkville Ives & Co., doesn’t seem to be buying that the AI revolution is running into its latter innings. And while he’s been known as one of the bigger tech and AI bulls out there, I do think that his commentary can provide ample food for thought, especially as investors and the market begin to show a bit of jitteriness, even as mega-cap tech continues to floor it while many sell-side analysts continue to subscribe to the narrative that AI isn’t just a bubble that will suddenly go bust.
Whichever clever analogy you’d like to use, I do think that Dan Ives has some really strong points for this AI revolution being in its early days.
Whether it’s in the “third inning” or a party at 11 pm that’s going on until 4 am, it’s clear that far too many market participants could risk a lot by trying to time the peak in the great AI buildout, especially as hyperscalers keep raising the bar on their CapEx.
With the latest round of big tech earnings in the books, I do think that the hyperscalers are starting to show that they’ve earned the right to spend more on the effort. Of course, Meta Platforms (NASDAQ:META | META Price Prediction), a new entrant to the hyperscaler club with its Meta Compute plans, fell flat in the latest quarter.
CapEx is rising, but so too is the monetization wave
But, for the most part, other more mature hyperscalers are starting to show signs of firing on all cylinders, with respectable cloud growth and glimmers of ROIs that could justify even more CapEx. With Microsoft (NASDAQ:MSFT) blowing the numbers out of the water, questions linger as to whether more CapEx could act as rally fuel rather than an overhang on the shares.
Azure growth rocketed to 43%, topping estimates, while the commercial remaining performance obligations (RPOs) swelled to 84%. Indeed, it seems like an inflection point has been reached, and as the next phase of AI technologies (think agents and robotics) comes to be, perhaps it makes more sense to visualize a floor under Microsoft’s growth rather than a ceiling, especially as the firm tackles its constraints so that its growth can be all that it can be. Any way you look at it, the hyperscalers are finally starting to be rewarded. And, in due time, Meta is bound to follow suit, especially since the firm is playing that same hyperscaler playbook.
In my view, Meta is where the hyperscalers were some time ago. And given the latest earnings season showed evidence that AI spend is actually for something, I do think that the market ought to be more forgiving of Mark Zuckerberg and his team as they look to move as fast as they can. I don’t think it’ll take too much time before the firm falls into the same boat as its hyperscaler peers, as the AI cloud looks to take its growth into overdrive.
AI spending still has a way to go
After the latest wave of earnings, I do think that AI demand suggests that Ives’ earlier innings are strengthened. What’s more, the man sees AI spending at “15% through,” which is most striking.
As for the winners of the ongoing AI buildout, as things get more aggressive and monetization kicks into high gear, I do think that the hyperscalers, semiconductor names on the pullback, and AI software titans (most notably Palantir (NASDAQ:PLTR)) could rise to the occasion. If Ives is right, the combination of rising spend and rapid monetization could lead to a “rising tides for most boats” kind of situation.
In my view, a name like Nvidia (NASDAQ:NVDA), one of the obvious picks-and-shovels plays, remains the name to stick with over the long run. Ives refers to Jensen Huang as the “godfather of AI” for a reason.
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