Broadcom and Nvidia are capitalizing on the return of the winner-take-all AI trade
AI picks and shovels are in demand, despite the aggressive accumulators of picks and shovels not having too much gold to show for it so far.
DeepSeek looks to have been the pause that refreshes for the most basic AI trade: buy the high-powered chips that everyone’s trying to get their hands on.
After a record one-day loss in market cap, it would be safe to expect some kind of bounce in Nvidia. And the stock did get that, before making post-DeepSeek lows thereafter. Even so, shares are handily outperforming Magnificent 7 hyperscalers (Alphabet, Meta, Amazon, and Microsoft) since the close on January 27. Both Morgan Stanley and Bank of America have doubled down on the company as their top pick in the sector.
Broadcom has done even better over this period, hopping from strength to strength. Seemingly every bit of fresh news out of the tech sector — from Meta’s huge capex plans, to Alphabet’s even higher estimated outlays, to chatter about who’s eating into a competitor’s Apple business — has been Broadcom-positive, even amid the stock’s mild retreat on Thursday.
An equal-weighted basket of megacap tech AI spenders (Alphabet, Meta, Amazon, and Microsoft) is getting trounced by an equal-weighted basket of spendees (Nvidia and Broadcom) since the DeepSeek-induced drubbing.
The major chipmakers’ rising tides clearly haven’t lifted all boats, though — not just within the sector but also within the industry. In some cases, like AMD, peers aren’t carving out a big enough piece of the AI data center pie for themselves. In others, like Qualcomm, it’s a function of being overly exposed to a less enticing part of chip demand — even if sales in that segment are surprisingly strong.
What’s been especially fascinating is that the return of the picks and shovels trade has come despite some of the biggest spenders on picks and shovels not finding much gold as of yet. Cloud revenues from both Alphabet and Microsoft, a segment that was supposed to get juiced by AI enhancements, both underwhelmed.
Yet the capex train keeps rolling on, causing cash flow generation at megacap tech companies to flatline.
I guess the lesson is, when you’re in a hole... keep digging.
