JPMorgan Chase: Semiconductor Stock Outperformance vs. Cloud Could Be Hard to Sustain, AI Trading Could Lead Sector Rotation

BlockBeats News, July 3rd, According to JPMorgan's report "Funds Flow and Liquidity: The Demand for AI Rotation," since September last year, semiconductor stocks, namely AI chip and storage manufacturers, have consistently and almost steadily outperformed hyperscale cloud service providers. This performance gap, from a long-term perspective, seems somewhat unsustainable. The report believes that as semiconductor trades are essentially part of a broader AI trade, the current differentiation has raised market concerns about sustainability.

JPMorgan stated that this gap could narrow in two ways. The optimistic scenario is that as hyperscale cloud service providers, AI model providers, and users improve in commercialization, revenue, and profitability, their performance begins to catch up and gains a larger share in overall AI value-added. The pessimistic scenario is that if semiconductors outperform at the expense of pressure on hyperscale cloud service providers, AI model providers, or end users such as customers, it may dampen their willingness to spend on capital expenditures and ultimately create resistance to semiconductor product demand.

The report pointed out that JPMorgan's internal view leans more towards the optimistic scenario, but analysts' consensus expectations show that the capital expenditure growth rate of hyperscale cloud service providers is expected to slow significantly from next year. According to this expectation, it is closer to the pessimistic scenario. The report stated that the capital expenditure growth rate of hyperscale cloud service providers is projected to reach 100% in 2026, but may drop to 22% in 2027 and further to 7% in 2028; if this deceleration path is confirmed, semiconductor trades may face significant pressure, triggering a more significant and sustained correction in AI trades in the stock and bond markets.

JPMorgan also stated that the future AI computing power price will be key to whether hyperscale cloud service providers can commercialize AI capital expenditures. The higher the computing power price, the more capable cloud service providers are to maintain or increase profit margins. In addition, the report stated that the U.S. money creation speed is expected to rise from $16 trillion in 2025 to $18 trillion in 2026, which will continue to support U.S. financial assets, especially U.S. stocks.