Last time out, we looked at AI or rather the pursuit of an AI super intelligence, and we tried to decide whether or not that was an expensive pipedream - billionaires and trillion-dollar companies chasing unicorns or life life-changing reality that is just beyond our grasp?
Today I want to stay with the AI theme, but rather than trying to forecast the future I want to look at the here and now and try to make sense of the sometimes conflicting signals that we get from the fast-moving sector.
Let's start with a soundbyte:
"The latest survey points to rising AI adoption.”
“The US Census Bureau’s latest report that tracks AI adoption across 1.2 million firms in the US
showed another step up in companies’ use of the technology. AI adoption rates rose to 9.2% in the second quarter of this year, from 7.4% in the previous three-month period and 5.7% in the December 2024 quarter.
This means AI adoption is likely to soon cross the 10% threshold that took US ecommerce 24 years to reach."
Source UBS Wealth
And then follow that up with a chart (see below )
Source: BofA Research
Both the quote and the chart should give you pause for thought, and maybe more so, when you consider that Amazon AMZN, which has rallied by +9569.0% over the last 20 years.
After all, Amazon effectively invented e-commerce and fulfilment, and its AWS cloud computing business provides the backbone and capacity for many AI projects and businesses including its own.
Source:Barchart.com
But not everything is rosy in the land of large scale computing and communications take the chart below as an example
You may not have heard of Equinix, which is:
“ A global digital infrastructure company. Equinix combines a global footprint of International Business Exchange or IBX data centers, interconnection solutions and edge services for deploying networks”
But if you trade CFDs or Forex in the UK and Europe, then it's highly likely that your orders and price feeds are routed through one or more of their data centres.
Ahead of and following a capital markets day, at which the company laid out its expansion plans and growth forecasts, earlier this week, the shares sold off.
In fact they are down by almost -16.00.% in the last week, having lost -9.0% on two consecutive trading days .
Why?
Well because their forecasts were only “in line” with expectations and management suggested that there might be a near term slowdown as the company grows.
Far from the worst news, but when you are being priced for perfection, any deviation from that pathway can create near hysteria among investors, who for the most part aren’t in it for the long haul.
Source:Barchart.com
Mind you, brokers were also quick to cut their price targets and even downgrade the company following the event.
Source:The Fly
And yet as of Friday morning, Schneider Electric SU FP, which fits out data centres, were up +5.65% on the session and were one of the best performers on my Broad Europe Smile chart, see the red box below.
No suggestion of slowdown here, then
Source: Darren Sinden
Supply Chain
What's happening further along the supply chain, in fact, right at the beginning with the suppliers of the equipment that allows the likes of Taiwan Semiconductor to make AI chips for Nvidia and others.
Despite the seemingly insatiable demand for AI chips and new foundries being built or proposed in the US Europe and the Middle East, US investment bank Jefferies has downgraded ASML ASML NA from Buy to Hold on expectations of falling demand though they admit that this not the consensus view among Wall Street analysts
Source:Jefferies Research
Does it all come down to this chart?
It might be instructive to watch how ASML performs from here in a spread against Taiwan Semi TSM.
There already looks to be some divergence on the one month hourly chart in the lower window below.
Source:Barchart.com
Server-side
Two stocks that have recently become associated with the AI story are Dell Technology DELL and Oracle ORCL.
Both of which have been on a decent run in recent weeks, with Oracle adding +31.0% since late May, whilst Dell has added some $31.0 to its share price since early May.
Both businesses make AI servers for data centres and if there were to be a slowdown in AI demand, then it should show up here, but there is no sign of that right now
Source:Barchart.com
Source:Barchart.com
Overall, I think the omens for tech and AI are positive heading into July. A month that’s largely been bullish for the S&P 500 tech sector over the last 15 years.
Of course, as we are always being told, past returns are no guarantee of future results, but as traders, we are used to playing the odds when they are slanted our way.
Source:Barchart.com
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