The AI Trade

Two months ago at the World Economic Forum in Davos, Microsoft CEO Satya Nadella said, "All I know is, I'm good for my $80 billion" regarding the $500 billion Stargate AI announcement. His comments followed the emergence of DeepSeek's R1 large language model and chatbot, which was supposedly trained at much lower cost than state-of-the-art models built in the US.

A February note from TD Cowen analysts stated that Microsoft was backing out of data center leases, as questions were arising about the necessity of so much spend on AI infrastructure. Today, those TD analysts reported that Microsoft walked away from two gigawatts’ worth of projects over the last six months after cutting back support for new model training by OpenAI. Nvidia fell 5.7%, and the PHLX Semiconductor index fell 3.3% on the news today. The semiconductor sector now has mostly erased its valuation premium versus the rest of the stock market that had built up since ChatGPT's release on November 30, 2022 (chart).