Company Interview / Who really wins from the AI boom?

Key points:

AI cash flows seen concentrating in chip and equipment suppliersChinese AI models viewed as rising competitive threat to US hyperscalersHyperscaler capex slowdown flagged as potential trigger for AI unwind

Roger Montgomery from Montgomery Investment Management argues the AI boom is increasingly concentrated in a narrow group of “pick and shovel” suppliers such as Nvidia ($NVDA), Broadcom ($AVGO), Micron ($MU) and Applied Materials ($AMAT), which he sees capturing most of the current cash flows. Montgomery points to plunging free cash flow at hyperscalers including Amazon ($AMZN), Alphabet/Google ($GOOGL), Meta ($META), Microsoft ($MSFT) and Oracle ($ORCL), which he states are effectively dedicating almost all cash – and rising debt – to AI infrastructure.

Montgomery highlights surging token usage in Chinese AI models from groups such as Alibaba ($BABA) and Kimi, which he views as cheaper and in some cases comparable to US “frontier” models, including those from OpenAI. In his view, this intensifies the risk that US hyperscalers cannot monetise AI quickly enough, forcing a slowdown in capital expenditure. He contends that even a single hyperscaler signalling reduced AI spending could trigger a sharp reassessment of valuations across the entire ecosystem.

Montgomery anticipates an eventual shift away from momentum-driven AI names towards quality and value factors. He favours “boring” inflation-linked infrastructure businesses and other defensive companies, and expects persistent inflation as central banks, in his view, have lost control of price pressures.