The artificial intelligence investment cycle is showing little sign of slowing, prompting Jefferies to raise its exposure to semiconductor and memory stocks even as it cautions that the rally faces one key long-term risk.
In the latest GREED & Fear newsletter, Jefferies' Global Head of Equity Strategy, Christopher Wood said the brokerage's base case remains that AI capital expenditure is intact, with zero sign of spending slowing despite the rapid rise of cheaper Chinese AI models.
Wood argued that falling AI token costs should ultimately boost demand for computing power under the Jevons Paradox, benefiting "picks-and-shovels" companies such as DRAM memory makers.
"The main risk to the picks and shovels story remains a sudden realisation by investors that the hyperscalers and the likes of OpenAI and Anthropic will not be able to make a return on their investment," Wood wrote. He added that such concerns remain "more theoretical" for now as AI spending continues at pace.
Reflecting that conviction, Jefferies increased its allocation to technology hardware across its model portfolios, adding SK Hynix and Kioxia, while raising its weight in Samsung Electronics. The brokerage funded the changes by trimming or exiting positions including Alphabet and Alibaba in some portfolios.
Wood also said the DRAM industry's fundamentals have improved structurally, with long-term supply agreements and strong AI demand supporting higher memory prices. He noted that Hynix, Samsung Electronics and Micron continue to trade at what Jefferies considers attractive forward earnings multiples.
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The newsletter added that Taiwan's booming AI-driven economy, expanding data centre investments and rising TSMC capital expenditure reinforce the view that the AI infrastructure cycle remains firmly in place.
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