For investors seeking diversification, the challenge may be figuring out which companies are quietly benefiting from the AI spending boom. (Photo by Joan Cros/NurPhoto via Getty Images)
NurPhoto via Getty Images
AI stocks stumbled around the world Tuesday. South Korea’s Kospi Index fell nearly 5% after memory chip giant Samsung Electronics dropped almost 7%, as concerns about future AI spending and demand overshadowed an 1,800% year-over-year jump in quarterly profit. The selling spread to the U.S., where the Nasdaq-100 fell about 2% and AI favorites including Micron, Broadcom, AMD and Marvell Technology also declined.
The concerns echo comments made last week by DoubleLine Deputy Chief Investment Officer Jeffrey Sherman. “We’re in a ‘no capex is too much’ kind of market when it comes to AI right now,” Sherman told Barron’s. Goldman Sachs estimates hyperscalers including Microsoft, Amazon, Alphabet and Meta will spend about $5.3 trillion on AI infrastructure through 2030. Barclays expects those companies to issue more than $200 billion in debt this year alone to help finance the buildout.
Looking through the investment-grade corporate bond market, DoubleLine portfolio manager Mariya Entina argues the AI investment boom has spread well beyond chipmakers and Big Tech. High-quality corporate bonds are supposed to be one of the steadier parts of a portfolio, often helping offset losses when stocks fall. DoubleLine says investors should look beyond obvious AI companies. Utilities, industrial businesses and other suppliers helping build AI infrastructure may also be benefiting from the same wave of spending, making their bonds less insulated from the AI cycle than investors might assume.
Tampa-based DoubleLine Capital, the $93.3 billion asset manager founded by billionaire Jeffrey Gundlach, whose net worth Forbes estimates at $1.6 billion, reached that conclusion after spotting an unusual combination in first-quarter results. Some of America’s biggest companies with the highest-rated debt reported their strongest quarterly earnings growth in years. Revenue for that group of investment grade issuers climbed 7% from a year earlier, the strongest showing since the third quarter of 2022, while operating profit rose 8.1%, the biggest gain since early 2022.
Normally, results like that leave companies sitting on more cash. Instead, those same companies recorded the largest cash drawdown on record. Cash balances fell 5.3% from the previous quarter, compared with a typical seasonal decline of just 0.9%.
DoubleLine estimates AI investment accounted for more than half of U.S. economic growth during the first quarter. Microsoft, Amazon and other tech giants are pouring tens of billions of dollars into data centers, but the money doesn’t stop there. It flows to companies making electrical equipment, cooling systems, networking hardware and power infrastructure. Those businesses hire workers, expand factories and place new orders of their own. Electricians, cement suppliers and utility companies all share in the work.
The footprint is already large. Companies helping build AI infrastructure now make up roughly 10% of the Bloomberg U.S. Corporate Index by market value, according to DoubleLine. If they were grouped into their own sector, they would rank second only to banks.
DoubleLine, whose top funds include its own $7 billion Core Fixed Income Fund, isn’t arguing investors should abandon investment-grade corporate bonds or predicting the AI boom is about to end. Its point is simpler. Many investors own those bonds because they’re supposed to help steady a portfolio when stocks stumble. But if companies that don’t look like obvious AI plays are also benefiting from the same investment boom, those bonds may not provide as much insulation from the AI cycle as investors expect. That’s why DoubleLine says its corporate credit team asks whether a company’s recent earnings have been lifted by AI spending. The goal is to avoid accidentally adding more AI exposure to the part of a portfolio that’s supposed to provide stability when markets get rocky.
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