AI trading this year focused on infrastructure projects, including chips, networking equipment and data center providers.
Alphabet’s (GOOG, GOOGL) skyrocketing capital spending, reported in its second-quarter results on Wednesday, was the latest sign of tailwinds for the AI ecosystem.
The tech giant, which has already spent more than $78 billion in the first half of the year, expects its total bill to fall between $195 billion and $205 billion in 2026, with spending mostly on data centers, networking and custom semiconductors.
The parent company of Google and AI tool Gemini has increased its capital spending over the past 12 quarters, according to Yahoo Finance’s AlphaSpace data.
“If you’re looking for derivatives stock calls, AI trading is still happening,” Mark Mahaney, head of internet research at Evercore ISI, told Yahoo Finance last week.
He added that AI infrastructure stocks are on the rise thanks to spending from hyperscalers like Google, Amazon (AMZN), Meta (META) and Microsoft (MSFT).
“These huge companies with enormous amounts of money and a lot of potential leverage are willing to spend a lot on infrastructure, more than anyone thought possible,” he said.
This has led to divergence in the AI industry as investors become increasingly concerned about the benefits of such massive spending. While Alphabet and other “Magnificent Seven” stocks suffered their biggest decline since April 2025 on Thursday, shares of memory makers Micron Technology (MU), SK Hynix (SKHY) and Sandisk (SNDK) all jumped. Memory chip manufacturers have increased prices due to supply shortages.
Meanwhile, Intel (INTC) beat Wall Street’s expectations for its latest quarter, benefiting from a boom in demand for central processing units (CPUs) as the tech industry increasingly focuses on AI agents.
The stock is up 14% year-to-date, benefiting from investments by the Trump administration. Nvidia (NVDA) reports that its manufacturer has commissioned well-known customers such as Google to produce its customized chips.
“I called it the makers versus the takers,” said Steve Sosnick, chief strategist at Interactive Brokers, referring to the beneficiaries of hyperscaler spending.
The PHLX Semiconductor Index (^SOX) has rebounded from its record high in June, but is up 66% year-to-date and 111% over the past year, comfortably outperforming the S&P 500 (^GSPC), which has gained 8% and 16%, respectively.
But even within the semiconductor complex, some strategists are warning against this. Package purchase across the entire industry.
“Right now there are two types of semis,” DA Davidson’s Gil Luria told Yahoo Finance.
“There are semis where the valuation suggests the cycle will be strong through 2030. Those are your AMDs (AMD), your Intels, your opticals, your semicaps, things like Cerebras (CBRS),” he said.
In comparison, the analyst pointed to “Micron and Nvidia – their current share prices suggest the cycle is already over. So even if we only had one more year of investment, these stocks would be very cheap.”
The wild card could be what the Federal Reserve decides to do with interest rates. As oil prices rose to $100 a barrel, the 10-year Treasury yield jumped to its highest level since January 2025, reaching 4.7%, while the 30-year Treasury bond stayed above 5% for the longest period since 2007, the year before the financial crisis.
Alphabet raised its capital expenditure forecast for the year on Wednesday. (Reuters/Dado Ruvic/Illustration) · Reuters / REUTERS
Higher interest rates indicate higher borrowing costs, which could spell trouble for a high-growth company looking to take on debt.
Further spending plans for the rest of the hyperscaler complex, such as software giant Microsoft reporting next week, could also cause volatility in stock markets.
“The sell-the-news reaction … if we see more of that from these names next week, that will create more headlines in the last month of the summer,” Matt Maley, managing director and equity strategist at Miller Tabak, told Yahoo Finance.
UBS strategists recommend focusing on more diversification.
“We remain positive on the AI growth story and favor diversified and balanced exposure across the AI value chain – from semiconductors and hardware to megacap technology and more defensive areas of the industry,” the strategists said on Friday.
Brent Schutte, chief investment officer at Northwestern Mutual Wealth Management Company, told Yahoo Finance he suggests not focusing on a specific AI topic or any topic at all, pointing to the financial services (XLF) sector as one of the beneficiaries of above-average AI performance.
“Continue to think about opportunities where there are more favorable valuations,” he said. “I’m thinking about small caps in the US and even real estate investment trusts, which have done really well over the last six months.”
Ines Ferre is a senior business reporter for Yahoo Finance. Follow her to X @ines_ferre.
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