Investors Trim Parabolic AI, Buy Data Center Power and Freight Plays
A prominent investor club is trimming emotion-driven artificial intelligence stocks and buying pullbacks in data center power suppliers and freight operators as soaring memory prices strain hyperscaler balance sheets.
The CNBC Investing Club convened its July monthly meeting on Thursday with a clear directive: trim parabolic artificial intelligence stocks and redeploy capital into infrastructure and industrial names. Portfolio director Jeff Marks and Jim Cramer executed sales in Home Depot and discussed trimming Starbucks. The pivot targets specific pullbacks, including data center power suppliers GE Vernova and Eaton, as well as Corning, which recently retreated from a June peak.
The strategic shift reflects growing anxiety over the massive capital requirements of the AI buildout. The four major hyperscalers are caught in a bind where soaring memory prices are inflating data center costs, yet they cannot afford to halt spending on a revolutionary technology. "Nobody knows how this tension will resolve," Cramer said, noting the situation remains highly fluid.
This cost pressure is creating divergence among the tech giants. Alphabet is viewed favorably because its search and cloud cash flows can fund its data center investments, a confidence underscored by Warren Buffett's backing. Conversely, Amazon's spring momentum has evaporated amid debt market fatigue and potential equity sale risks, while Microsoft needs to demonstrate stronger AI monetization to avoid comparisons to legacy software vendors like IBM.
Within the data center supply chain, the focus is shifting from pure graphics processors to power generation and alternative silicon. GE Vernova's natural gas turbines and Eaton's electrical equipment are seen as essential to keep server racks running. In semiconductors, Intel is gaining traction as a domestic manufacturing alternative to capacity-constrained TSMC, while Broadcom is capitalizing on client demand for custom chips to rival Nvidia.
Outside of tech, the portfolio is positioning for a cyclical turnaround in freight and strength in banking. The spin-off of FedEx Freight is expected to unlock value as the industry exits a multiyear recession, a trend highlighted by recent results from J.B. Hunt. In financials, Goldman Sachs is favored at current levels around $1,100, while Capital One is held at roughly nine times earnings on expectations that management will clarify the earnings power of its Discover acquisition.
Healthcare and select industrials are also drawing interest. Johnson & Johnson is being accumulated despite a $150 million second-quarter revenue miss from its Abiomed subsidiary, a minor blemish for a company generating $100 billion in annual sales. Meanwhile, industrial gas supplier Linde is prized for its resilience, whereas legacy industrials like DuPont and Dover are facing pressure to prove their growth credentials in upcoming earnings reports.
