AI investors are getting nervous. Should they be?

**Sam Ruiz** (0:00)
I don't think anyone thought that Google Search could be a disruptible franchise three years ago. One of the hyperscalers CEO said, we need to invent a new word for price gouging because what they're doing is not price gouging, it's on another level. Will it be sustainable? Nobody knows the answer to that.

**Bryce Leske** (0:15)
There are a lot of nerves in today's market about the spending going on in AI. Are we in an AI bubble? Today, we're asking our expert the question, should we be nervous? Welcome to Equity Mates, the show where we explore what's possible in the world of investing. My name is Bryce.

**Alec Renehan** (0:30)
And I'm Wren. And today, I am talking to Sam Ruiz, a portfolio specialist at T. Rowe Price, who specializes in global equities. And Bryce, as you said, it's all about the AI trade and the nerves that we saw leading into earning season and then what we've learned since. Now, I recorded this interview the day that you were getting back from Europe. So I did this one solo. So I'll tell you about it. It was a cracking interview.
I really enjoyed it. I think we spoke about the biggest and most well-known companies in the world, Alphabet, Microsoft, Amazon, Apple, Meta, and really tried to ask the trillion-dollar question, which is, are we overspending on AI data centers and what's that going to mean for our investments?

**Bryce Leske** (1:16)
Well, I'm not going to jump the gun and ask you what he said. Obviously, you're going to listen to it and find out the answer. But you're right.
I mean, it's the talk of the town. Everyone wants to know the answer.

**Alec Renehan** (1:26)
And I think we really kind of tackled the topic in two parts. The first was the immediate, like what have we learned from this Q2 earning season? What have the numbers told us? But then more longer term, like where is this AI story playing out? Questions around commoditization of AI because of Chinese models and what the story looks like longer term. Look, they're hard questions to answer. Sam actually has a good line in this conversation, which is solve the easy question. As investors, we don't have to answer every question. We just have to answer the questions that we're investing behind. So we get into all of that and I ask him his favorite ways to play this AI trade. So without further ado, let's do it. Let's get to my conversation with Sam Ruiz.
Sam, welcome to Equity Mates. Good to be here, Alec. I'm excited for this one. We're talking all things big tech and AI.
I think I'm going to characterize my feelings and I think I'm going to describe my feelings of a lot of the Equity Mates community to start with, which is uncertainty. It's been an incredible few years for this AI trade. There's a few wobbles.
Earning season is upon us. So we're going to pick your brain and try and make sense of everything that's going on. It's a big ask for you.

**Sam Ruiz** (2:39)
Let's get into it. It sounds good.

**Alec Renehan** (2:40)
So let's start with this sentiment coming into earning season. And if we look at the Semiconductor Index, it had surged over 100% in the year to sort of late June.
And then it gave back more than 20% and entered a technical bear market. How would you sum up the sentiment around AI and the AI trade heading into this earning season?

**Sam Ruiz** (3:02)
There is a really strong expectation for a lot of these stocks and high hurdle rates, but it all comes down to AI capex. So you mentioned the SOCs or the Semiconductor Index specifically. What is the SOCs? It's not the hyperscalers, the companies spending on building out AI capacity.
It's the list of companies that are actually receiving those checks to plug in the data centers, to install the brains, which are the GPUs or plug in the CPUs or put the memory into those data centers. So when we are at a very high level of expectation for AI capex, not just is but will be in the future, in my view, there was a pretty strong de-risking event where it's like, get the risk off the table because we don't want to be holding something with such high expectations if these hyperscalers come out with pretty disappointing Ford capex numbers.

**Alec Renehan** (3:52)
Yeah. And we're going to get into some of the numbers. As we speak, six of the seven, magnificent seven have reported. What were your headline takeaways and then we'll get into the detail.

**Sam Ruiz** (4:03)