Nvidia (NASDAQ:NVDA), Oracle (NYSE:ORCL) and Broadcom (NASDAQ:AVGO) could be in the crosshairs if the AI capex spree cools, warns Marko Kolanovic, former J.P. Morgan strategist now with Prospero, saying the frenetic buildout that fueled markets over the past two years can’t sustain its breakneck pace.
Kolanovic flags five emerging cracks at Nvidiacustomers designing bespoke chips, rising Mellanox competition, software layers diluting CUDA lock-in, efficiency gains bending the compute curve and potential product-roadmap hiccupsthat could rattle investor confidence. In Q1, hyperscalers inked more than 2 GW of power deals on top of Microsoft’s 1.2 GW Abilene, Texas, pact and an $11.9 billion CoreWeave (NASDAQ:CRWV) agreement in Denton, Texas.
Oracle, by contrast, is matching Microsoft’s AI steps but at a higher leverage cost: its latest $5.8 billion of capex equaled 100% of Q1 cash from operations, while MSFT sustains spending on a cash-flow juggernaut 4x larger.
Kolanovic warns that if Oracle’s AI investments don’t deliver outsized returns, mounting depreciation could drag on forward earnings. Broadcom, trading at roughly twice its historical P/E and a 20% premium to Nvidia, has banked $110 billion on software buysprimarily VMwareto offset a capped communications-chip market.
Yet with virtualization pricing hiked up to 1,200% in spots and minimum core buys steeped at 72 from 12, any pullback in AI spending or sentiment risks a sharp valuation reset.
Investors should care because the AI capex bullwhip stretches from hyperscaler budgets through chips, hardware, integration and datacenter hosts, and any moderation can cascade quickly through this value chain.
With Nvidia’s next earnings on May 22, Oracle due May 22 and Broadcom reporting June 5, markets will scrutinize capex guidance and software deal pipelines for signs that the AI boom can be more than a two-year sprint.
This article first appeared on GuruFocus.
