Goldman’s Covello Says Buy AI Hyperscalers Over Chipmakers

Editor's take

Goldman Sachs analyst Jim Covello advises investors to prioritize large cloud providers, or hyperscalers, over semiconductor manufacturers when seeking exposure to the burgeoning AI infrastructure market. This recommendation stems from the belief that hyperscalers, such as Microsoft, Google, and Amazon, will capture a larger share of the value created by AI hardware investments due to their direct control over deployment and service delivery.

The distinction is significant because while chipmakers like NVIDIA and AMD are essential components of AI, the ongoing race to build out AI capabilities involves immense capital expenditure. Hyperscalers are not only purchasing vast quantities of GPUs and custom AI silicon but are also building out the data centers, networking, and software stacks that enable AI services. This integrated approach positions them to benefit more broadly from the AI wave, rather than solely from hardware sales.

Future analysis should focus on the actual capital expenditure trends within these hyperscaler ecosystems and the pricing power dynamics between chip vendors and their largest customers. Observing how these companies manage their AI-related operating expenses and the profitability of their AI-powered services will be crucial in validating this investment thesis.