The AI Boom Is Changing Hands

The AI Boom Is Changing Hands

For much of the last three years, the AI story looked deceptively simple. The first big winners were semiconductor companies supplying the chips, memory and equipment needed to build AI infrastructure. Then came the hyperscalers, spending hundreds of billions of dollars on the computing capacity required to train and run AI models.

 

A striking chart from BofA Global Research shows how dramatically the economics are now shifting. The 12-month forward free cash flow of major semiconductor companies has surged to more than $400 billion, while that of the largest hyperscalers has fallen sharply and is projected to turn negative. Put simply, the companies buying the infrastructure are spending cash at an extraordinary pace, while the companies supplying it are receiving it.

AI began as a race to build better models. Better models required more computing power, turning it into a race for GPUs. That created new bottlenecks in memory and advanced packaging, followed by a rush to build data centres. Now, the constraint is moving again — towards power generation, transmission networks, cables, transformers, cooling equipment, industrial capacity and real estate.

With every new bottleneck, the AI value chain has expanded further beyond technology itself. What began as a software story became a semiconductor story and is now increasingly a physical infrastructure story.

Where does India fit into this?

India has often been viewed as an “anti-AI” market.

Unlike the US, Taiwan or Korea, India has limited representation among the dominant global semiconductor and AI hardware companies. As capital moved rapidly towards the direct beneficiaries of the AI boom, this relative absence became a disadvantage. It is one reason why India has been overshadowed within the Emerging Markets basket over the last 18 months.

But looking only at the headline index misses an important point. Even during this period of broader market underperformance, returns within India have been far from uniform. There has been significant dispersion across sectors. Some parts of the market have struggled, while others linked to financials, power, resources, healthcare and the domestic investment cycle have continued to see stronger earnings momentum and better market outcomes.

This matters because the AI cycle itself is broadening. A world spending more on computing also needs more electricity, grid infrastructure, industrial equipment and critical resources. And as AI moves from infrastructure creation to adoption, sectors such as financials, manufacturing and healthcare could become major users of the technology rather than merely spectators to it.

India does not need to become the next semiconductor hub for its companies to benefit from the forces reshaping the global economy. Its opportunity may lie elsewhere: in the physical infrastructure required for a more power-intensive world, in domestic capital formation, and eventually in the productivity gains that AI adoption can bring to large traditional sectors.

The bigger investment lesson

For much of the last two decades, broad market exposure worked remarkably well. Falling interest rates, globalisation and expanding valuations created a favourable backdrop across large parts of the equity market. Investors could participate in the dominant trend without necessarily having to be precise about where they were positioned.

The environment ahead may be different.

The AI cycle itself shows why. Value has already moved from models to chips, from chips to infrastructure, and could eventually move towards the businesses that use AI most effectively. At the same time, the experience in India over the last 18 months shows that even when the headline market struggles, the gap between winning and losing sectors can remain substantial.

The next phase of returns may therefore not come from simply owning the broad market. It may come from understanding where earnings, capital and economic value are moving and being positioned in the right sectors before the market fully recognises the shift.

 

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