These Analysts Predict an AI Sell-Off. Here's the Long-Short Trade They Suggest

Core Insights - BCA Research predicts that the recent boom in AI investments by major tech companies will negatively impact their stock valuations, similar to past cycles in cryptocurrencies and precious metals [1][5]. Investment Strategy - BCA analysts recommend going long on Korean and Taiwanese chipmakers while shorting U.S. hyperscalers like Microsoft, Alphabet, Amazon, Meta, and Oracle, anticipating a pullback in AI stocks [2][5]. - The analysts express concerns that the massive capital expenditures by these hyperscalers, expected to exceed $400 billion this year, may lead to poor capital allocation and ultimately depress their return on equity [3][5]. Market Impact - The five hyperscalers represent a significant portion of major U.S. stock market indexes, meaning their stock performance can greatly influence overall market dynamics [2]. - BCA expects that the hyperscalers' aggressive investments in data centers and advanced technology may not yield the expected returns, which could lead to a decline in their stock valuations even if profits continue to grow [5][6]. Future Projections - BCA anticipates that the construction costs for data centers will decrease in the coming years, potentially leading to a decline in the value of existing data center capacity [3][6]. - The firm believes that any signs of underperformance in AI investments could adversely affect the stock prices of hyperscalers, while Asian semiconductor manufacturers are expected to benefit from ongoing data center investments without facing the same excess supply issues [6][7]. Trade Outlook - BCA predicts that their strategy of shorting U.S. hyperscalers and going long on Asian chipmakers will be successful over the next 12 months, regardless of the performance of the AI sector [7].