r/valueinvesting
Could the run for semiconductors and memory companies continue?
Hyperscaler capex and strong balance sheets (e.g., GOOGL) support continued semiconductor rally despite hyperbolic moves.
- Hyperscalers are committing over $700B in capex for data center infrastructure, providing a solid revenue lifeline for chipmakers.
- Tech giants like Alphabet are raising capital to maintain pristine balance sheets with negative net debt, enabling sustained investment.
- Continued heavy investment in data centers aims to entrench competitive moats, suggesting long-term demand stability for semiconductors.
They've had a hyperbolic move upward, not just the large players but essentially every company in both of these categories, regardless of country. Now the hyperscalers spending 700 billion + on capex for data center infrastructure is effectively the lifeline for these companies. Alphabet this week announced an 80 billion raising round, and possibly the other mag7 follow suit in various forms. Many of them are moving towards negative net debt, unheard of from a few years ago where they were deep in cash and effectively no debt, leading to pristine balance sheets. If they continue to invest into these data centers in order to further entrench moats, if the demand continues to keep up, wouldn't this mean the semiconductors and memory companies are actually undervalued, thus they could continue the hyperbolic runs?
My view is heavy skewed because I am in the tech scene - I don't think software engineering can ever go back to the pre-agentic era. I had serious doubts about AI doing real work, but after using coding agents day in day out for the last couple of months and seeing the model improves in realtime ... coding without AI is now unthinkable!
I don't think coding is anything special and any service/industry that can be digitalized is/will be having a agentic moment. I truly believe the demand is already there (Anthorpic is projected to be profitable in 2026) and will ramp up a lot faster over the next 2 to 3 years.
Exactly. I am in tech too. I can’t imagine my life without AI even tho I am the person who hates to spend money (in general) but right now, I am kinda forced to pay for AI for efficiency sake. I mean, I know many people around me who are also paying for AI too
There are a not many things I pay more than $100/month for… but the things I do pay that much for are necessities. That’s how I see Claude at the moment.
Haha 💯 Same for me. I hate paying for subscriptions and I pay minimum amount and always try to cut those. I can’t do anything about AI and I know 98% devs will be like that
I’m really perplexed why people can’t put the dots together. I mean sure, the average person probably doesn’t know much at AI, they will care though when they’re directly impacted by agents or robots.
It’s really quite frightening actually.
Especially when Elite capital allocators like Google do an $80B offer and Berkshire Hathaway (of all companies) gobbles some of it up. To me that signals insatiable demand and that’s backed up by Google’s insane backlog. That’s the whole reason the raise occurred, to fulfill it.
Yeah I mean all you have to do is use it a decent chunk and watch “The Thinking Game” people seem to think the smartest people on the planet are allocating their capital incorrectly and all in on some big grift.
I'm not anywhere near tech, but my workplace automated away 90% of an administrative role (collecting and verifying certificates of insurance for subcontractors) to the point where they laid that person off and distributed the remaining 10% of responsibilities to the project managers - and this is in a very old-fashioned, change averse company. And the new process actually works well. This isn't a situation where management will be slapping their heads and trying to hire this person back in 6 months.
I understand the bear case for individual firms or the idea that sector valuations may have outrun reality, but I struggle to take seriously the idea that LLMs and AI in general won't be hugely transformative to white collar jobs in the short term and all jobs in the long term.
The worst case scenario is probably something like stocks get trashed => capex gets cut => downturn in the economy. META got trashed today when their equity issuance plan leaked.
The best analogy is the vaccine maker stocks during COVID. The semis are seeing a once in a generation earnings wave driven by AI capex at the moment but it wont last. We are starting to hit some very real financial and political limits on AI capex. A large chunk of current spending commitments are likely to never materialize. Just like with the railroads and the dot com boom there will be a few winners but most will be losers. At that point the semis will be sitting on all the cash they made from the boom but looking at overcapacity and declining revenues for the forseeable future. A glance at PFE and MRNA stock prices over the past 3 years should tell you how that ends.
Stock goes up 200 % because earnings go through the roof……reeeeee this is not healthy……Stock drops 15 % because of Macro an another company not completly destroying guidance…..reeeeee this is dotcom it‘s all going to zero. Value investing clowns ina nutshell.
Nobody knows yet and those who act like they do are lying to you. Ask them for any data. TSMC said they can't meet demand for years
If anything is bubbly its space. ETFs running 400% in 18months based on the news SpaceX IPOs. Semis are only second place.
Why not though? The capex won’t last forever, buildouts cannot last forever. If Zuck suddenly announces that they’re chilling out on the spend, they’re gonna shoot right back up. FCF will come roaring back and suddenly cost of revenue will stop casting a shadow over their otherwise very impressive growth. I think sentiment is already so poor they can’t really be beaten down any further, the multiple they’re trading at now (now around 18) is completely detached from the reality of how much money they make.
logging into any of their platforms feels like walking into a Golden Corral. I don't care what the ad machine potential is...its all too detestable for me to hold through rough times