AI bull market internal cracks widening! Analysts recommend: stay away from "bleeding" tech giants and buy chip stocks.

Amid the collective pullback of tech giants in the US stock market, Ben Reitzes, head of technology research at Melius Research, advised investors to avoid Alphabet (GOOG.US, GOOGL.US), Meta (META.US), and Amazon.com, Inc. (AMZN.US), among other super-sized cloud service providers, as these companies have failed to generate significant cash flow. In an interview, he stated, "I still don't like super-sized data center operators, for a simple reason: they cannot generate truly valuable cash flow. Who cares? Buy chip companies instead." On Thursday, the US tech sector experienced a sell-off, with the combined market value of the "big seven" US tech companies evaporating nearly $800 billion in a single day, and the Nasdaq 100 Index falling 1.9%. Alphabet Inc. Class C, the parent company of Alphabet, dropped by 7%, while Tesla, Inc. plummeted by about 15%, marking their worst single-day performance in over a year. Both companies had just released earnings reports, with significant capital expenditures causing market concerns, and negative free cash flow facing strict scrutiny from investors. However, chip stocks like Micron Technology, Inc. (MU.US) saw a counter-trend upswing. Reitzes believes that investors should reduce their focus on increasing capital expenditures and pay more attention to the profit margin pressures these investments bring. He pointed out, "The increase in capital expenditure is in line with expectations. I think this is good news for the chip industry." Reitzes explained that Alphabet's recent profit margin weakness directly stems from cloud computing costs, data center expansions, and accelerated capital expenditures. He cautioned that the "profitability theme" of super-sized data center operators is just beginning and will soon impact Meta, Amazon.com, Inc., and Microsoft Corporation (MSFT.US) as they prepare to release their earnings reports. Despite investor anxiety, stock price declines of tech giants, Reitzes believes that tech giants will continue to heavily invest in AI infrastructure. He noted that the risks these companies face are too great to retreat. Reitzes emphasized that Meta is the super-sized data center operator he closely monitors and expressed concern about the company's ever-evolving AI strategy. Reitzes said, "Their strategy seems to change every day, or no one knows at all." He hopes these companies can quickly convert their substantial capital investments into clear and tangible income. Cracks in the AI bull market widen: Chip stocks rise, cloud giants fall This year, the AI race has shown an extreme structural differentiation in the market: chip companies that hold core production capacity and supply AI industries have shown a strong market performance, while tech giants that continue to make large-scale purchases of computing power and lay out AI infrastructure have faced market selloffs. Year-to-date, the Roundhill Magnificent Seven ETF (MAGS), which tracks US tech giants, has fallen by 4%, while the Philadelphia Semiconductor Index (SOX) has risen by 74%. The internal differentiation in the AI theme stocks has drawn attention. J.P. Morgan's strategist warned that the current differentiation pattern of "strong chips, weak cloud giants" is highly similar to the late 1990s internet bubble. J.P. Morgan strategist Jason Hunter stated in a report on Wednesday that if super-sized cloud computing giants cannot break through key technical resistance levels, and the semiconductor sector continues to hover below key resistance levels, "what initially started as a rotation within the AI theme could morph into a more worrying overall breakdown."