Peter Boockvar: The AI Spending Bubble Is Cracking

**Peter Boockvar** (0:00)
The bubble is clearly in the CapEx side. You can be sure in the next couple of years, this DRAM cycle will reverse.
I think debts and deficits now matter. Markets are choking on excess supply for the first time in my lifetime. So I think gold's a buy on this pullback. It's the rise in rates, real rates, that have been sort of the biggest sort of bugaboo for gold here.

**Maggie Lake** (0:28)
Hi everyone, I'm Maggie Lake. Joining me to discuss global markets is Peter Boockvar, Chief Investment Officer at OnePoint BFG Wealth Partners. Hi Peter, it's great to see you again.

**Peter Boockvar** (0:38)
Hey Maggie, great to be with you again.

**Maggie Lake** (0:40)
A warm welcome to everyone tuning in. If you are not a member of our community, click the link to keep up with the latest and get access to exclusive content and invites.
So Peter, a lot going on. It feels like it's not so calm and quiet this summer. It feels like there's kind of a lot of turbulence. As you look across global markets, what's top of your radar?

**Peter Boockvar** (1:00)
Well, I think investing is getting harder.
And I say that, not like kidding around, but it is in the sense that usually markets give you sort of like these one decision situations. Max seven was a one decision situation. That was great if you own them. It wasn't so great if you didn't own them. Then all of a sudden markets sort of differentiated and diversified away from Max seven and then opened up a whole world of opportunities. But then post-war, with the dollar rallying, it made international investing more difficult. And then everyone piled into semiconductor stocks. And you were either at the party owning them or you were left outside, which is this very interesting dynamic where Max seven continues to weaken and let's own Micron, for example. So it's this strange world that we're in. I think we're all trying to figure out at this point, because I feel like we're reaching some major inflection points with this AI trade. And I do notice that investors are beginning to look for some defensive areas of the market too. And even that chip trade is beginning to falter, it seems, or get tired.
And so really interesting dynamics here, I have to say.

**Maggie Lake** (2:17)
Yeah, and I think that's why we're having a lot of these conversations trying to help people figure it out. Because if you've done well, you want to hold on to that. But the future looks really uncertain, and some of the things you would do to diversify, it's not clear whether that's working. So let's start with what you see in the AI trade.
Are you, like everyone else, worried about a bubble? Do you have exposure? Have you reduced exposure? Recommending reducing exposure? What kind of risk-reward profile do you see in that space?

**Peter Boockvar** (2:52)
Well, the bubble is clearly in the CapEx side, not necessarily the technology, because at the end of the day, we're all going to benefit from the technology. Just the question of when I say we, meaning I believe the users of it. I think the spenders on this, that's where the bubble is. And taking a step back, I think Bells started to ring on the Mag 7 trade last year, on the hyperscaler trade, because I need to include Oracle in this.
Last year, late last year, when people realized that half of Oracle's massive RPO, which is the remaining performance obligations, which initially when they talked about it in a couple of quarters prior, that sent the stock north of 300, people realized like, wow, half of your exposure is open AI.
Not only that, you're spending half your revenue on CapEx, which then went to 75% of your revenue on CapEx. And now is 100% of your revenue on CapEx, a little less than that if you include some prepayments they're bringing in.
Then a couple quarters last year, Meta reported stellar numbers, but the stock got hammered because of worries about all their CapEx spend. And then fast forward into this year, and markets certainly started to differentiate between the 700 plus billion of spend, and let's punish those that are spending it, and let's reward the recipients of that spend, mostly semiconductor stocks that originally was NVIDIA and Broadcom, and then shifted to memory and storage names. And then also the DELs and the HPs that are selling a lot of the data servers and other equipment into these data centers. So that's how I think investors are sort of hopping around. But now we're at a situation where Micron has 85 percent gross margins, and investors are saying, well, how sustainable is an 85 percent gross margin in what is historically been a highly cyclical space?