Hyperscalers will continue to ‘aggressively’ invest in AI: Analyst

CFRA Research senior equity analyst Angelo Zino joins Market Domination to break down the best Big Tech plays for investors. Intel (INTC) unveiled a new pair of AI chips on Tuesday as it seeks to improve its data center business and compete with players like Nvidia (NVDA) and Advanced Micro Devices (AMD). Zino tells Yahoo Finance, "Intel will continue to roll out new capabilities, new chip sets, out there in the foreseeable future. But that said, I don't think it necessarily changes anything as far as the Intel story is concerned. That's the fact that this is a company that continues to see its business model under attack." He notes that AMD has been "eating market share from Intel" on the PC and data center front while Nvidia's Blackwell chips rival Intel's CPU business. Zino adds, "When you kind of look at the CPU industry, it looks like it's really kind of under attack right now as far as where Nvidia where Intel stands at this moment in time." Thus, he believes the best-case scenario for Intel investors would be a potential acquisition. While Qualcomm (QCOM) has reportedly been in talks about a takeover, he does not believe it will come to fruition: "I think there's only kind of limited upside in terms of what they could offer out there. Not to mention, I think from a regulatory perspective, I don't think the deal kind of gets anywhere near to being completed." In the meantime, Zino believes the best Intel can do at this moment is to cut operating expenses and return to positive free cash flow. In addition, he's looking for momentum in its foundry business, hoping it will gain traction from external customers. He adds, "If you're an Intel investor, you're essentially a value stock at this at this point in time, hoping for improved profitability metrics to kind of get the stock going a little bit." While AI drove markets to new heights during the first half of the year, the second half of the year has seen many investors grow concerned about returns on AI spending. "Our view right now is that as far as kind of the mega-cap tech companies out there is concerned, they will continue to spend as long as kind of their business models, their revenue trajectory continues to hold up. And we think that will be the case in terms of cloud spend, in terms of digital ad spend going into 2025, and also kind of the compute trajectory here over the next decade," Zino explains. He continues, "The fact that improving compute metrics over the next couple of years will potentially drive greater AI monetization, new use cases for AI, I think, is a very interesting proposition and a reason why these hyperscalers will need to continue to aggressively invest. So for that reason, we continue to think there is stabilization past 2025." For more expert insight and the latest market action, click here to watch this full episode of Market...

CFRA Research senior equity analyst Angelo Zino joins Market Domination to break down the best Big Tech plays for investors.

Intel (INTC) unveiled a new pair of AI chips on Tuesday as it seeks to improve its data center business and compete with players like Nvidia (NVDA) and Advanced Micro Devices (AMD). Zino tells Yahoo Finance, “Intel will continue to roll out new capabilities, new chip sets, out there in the foreseeable future. But that said, I don’t think it necessarily changes anything as far as the Intel story is concerned. That’s the fact that this is a company that continues to see its business model under attack.”

He notes that AMD has been “eating market share from Intel” on the PC and data center front while Nvidia’s Blackwell chips rival Intel’s CPU business. Zino adds, “When you kind of look at the CPU industry, it looks like it’s really kind of under attack right now as far as where Nvidia where Intel stands at this moment in time.”

Thus, he believes the best-case scenario for Intel investors would be a potential acquisition. While Qualcomm (QCOM) has reportedly been in talks about a takeover, he does not believe it will come to fruition: “I think there’s only kind of limited upside in terms of what they could offer out there. Not to mention, I think from a regulatory perspective, I don’t think the deal kind of gets anywhere near to being completed.”

In the meantime, Zino believes the best Intel can do at this moment is to cut operating expenses and return to positive free cash flow. In addition, he’s looking for momentum in its foundry business, hoping it will gain traction from external customers. He adds, “If you’re an Intel investor, you’re essentially a value stock at this at this point in time, hoping for improved profitability metrics to kind of get the stock going a little bit.”

While AI drove markets to new heights during the first half of the year, the second half of the year has seen many investors grow concerned about returns on AI spending. “Our view right now is that as far as kind of the mega-cap tech companies out there is concerned, they will continue to spend as long as kind of their business models, their revenue trajectory continues to hold up. And we think that will be the case in terms of cloud spend, in terms of digital ad spend going into 2025, and also kind of the compute trajectory here over the next decade,” Zino explains.

He continues, “The fact that improving compute metrics over the next couple of years will potentially drive greater AI monetization, new use cases for AI, I think, is a very interesting proposition and a reason why these hyperscalers will need to continue to aggressively invest. So for that reason, we continue to think there is stabilization past 2025.”

For more expert insight and the latest market action, click here to watch this full episode of Market Domination.

This post was written by Melanie Riehl