AI chipmakers have dominated the first wave of the AI boom. But investors may want to start looking beyond semiconductor stocks for the trade's next phase, according to Goldman Sachs.
The shift comes as the AI rally has become increasingly concentrated in infrastructure names, even as investors start searching for the next set of winners, the bank's analysts wrote in a Monday post.
"The general idea is that chip companies are supposed to thrive when their customers thrive," wrote James Covello, the head of global equity research at Goldman Sachs.
"They are not supposed to be thriving at the expense of the companies higher in the chain," Covello added.
Covello added the current dynamic — in which semiconductor firms are posting record revenue and profits while other parts of the AI ecosystem continue spending aggressively — is "unprecedented and unsustainable."
The call came after a yearslong rally in AI-linked chip stocks led by Nvidia, which has become one of Wall Street's biggest winners as tech companies race to build AI infrastructure and data centers.
But investors are increasingly questioning which companies will ultimately turn massive AI spending into durable earnings growth.
Goldman said it now expects hyperscalers to outperform semiconductor companies.
"Investors have become fairly skeptical of the returns the hyperscalers are likely to deliver. If enterprises begin to show returns from AI spending, investors may be willing to pay higher multiples on these stocks again," according to Goldman.
Hyperscaler stocks could also benefit if companies cut back on AI spending to improve cash flow, even if returns from enterprise AI adoption remain challenging. That scenario could pressure semiconductor shares while boosting hyperscaler stocks, Goldman added.
The biggest risk to Goldman's view is that hyperscalers keep pouring money into AI infrastructure without seeing meaningful returns from enterprise adoption. In that scenario, semiconductor companies would likely continue capturing most of the gains from AI spending, the bank said.
