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Hardware is Wall Street's new favorite bet

Dan DeFrancesco   

Hardware is Wall Street's new favorite bet
  • This post originally appeared in the Insider Today newsletter.

Welcome back! For the Elon Musk fans out there — 37% of you voted in favor of his pay package in our poll — you can now get a similar pair of the Cybertruck shoes he's been rocking.

In today's big story, we're looking at the Apple-Google partnership that shows why hardware has become Wall Street's new favorite bet.

What's on deck:

But first, GPUs for you.

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The big story

Hardware is hot

Software may still eat the world, but only with the help of some serious hardware.

Marc Andreessen's famous 2011 proclamation about the rise of software has rung true for the past decade. But generative AI has put a considerable spotlight on a less sexy part of tech: hardware.

One of the biggest storylines last week — the unveiling of Apple Intelligence — is an example of that shift.

Much of the discussion leading up to the event was about Apple's rumored partnership with OpenAI. But Apple's behind-the-scenes relationship with Google to train its AI models was just as crucial to the launch, writes Business Insider's Hugh Langley.

The massive data-center footprints that firms like Google, Microsoft, and Amazon have amassed are proving incredibly valuable during the generative AI boom. Like people looking to pack on muscle, large-language models need a place to train. This specialized hardware is the gym they can do it in.

But, following our fitness metaphor, there are only so many gyms in town. That's why we're starting to see unique partnerships between tech giants, like Apple and Google or Oracle and Microsoft.

The increased importance of hardware hasn't gone unnoticed by Wall Street.

The Cloud 2.0 era has meant new opportunities for other players to step up. That's playing out in the stock market, where hardware tech stocks have outperformed software tech stocks by 30 percentage points this year, writes BI's Matthew Fox.

Nvidia is the most obvious example. It's the market's golden child and is close to catching Microsoft as the most valuable company in the world.

But it's not the only one. Chipmaker Broadcom saw its stock explode this week, adding to an impressive year that's seen its shares up roughly 60%. Now it could be the next $1 trillion company.

One of the biggest names in finance is all-in on the hardware, too. Private-equity giant Blackstone is betting big on data centers.

In April, CEO Steve Schwarzman said the firm has a $50 billion portfolio of data centers, with plans to double it. Blackstone President Jon Gray has previously pegged the data-center market at growing to a trillion dollars in the next five years.

All this is not to say that software has lost its luster. After all, a gym is only valuable if there are people looking to use it.

There are plenty of valuable companies in the space with high ceilings (see: OpenAI). But those high-flying AI models also come with controversy (see, again: OpenAI).

So yes, hardware might be boring. But for investors, boring can be good.

News brief

Your Monday headline catchup

A quick recap of the top news from over the weekend:

3 things in markets

  1. Citi's Andy Sieg bet big on overhauling a struggling wealth business. Merrill Wealth Management's former president took a gamble leaving a strong business for Citi's much smaller wealth division. But if he's able to execute a turnaround, he could be the bank's next CEO.
  2. Even as stocks boom, some bears remain. It might seem impossible to bet against the market these days, but these folks are. Five bearish forecasters share why they still see a downturn coming.
  3. Dan Sundheim is having a good year. D1 Capital, his $19 billion investment manager, is up 18% in its public-equity-only portfolio this year, a person close to the firm told BI. Despite its gains, the firm has billions allocated to private investments that have dragged down returns.

3 things in tech

  1. Roast me like you mean it. At a sold-out comedy show for techies, audience members eagerly volunteer to be ridiculed by the hosts. It's a mix of being in on the joke and being the butt of the joke.
  2. YouTube is the ultimate "must-have" service. In a recent survey of users' favorite entertainment platforms and services, four of the top five spots went to YouTube. It shows the power of the video platform, even compared to streaming giant Netflix.
  3. Another Trump presidency could be a double-edged sword for Elon Musk. Musk has been flexing his power as a political influencer lately. And while he hasn't publicly endorsed any candidate, whoever wins the White House could massively impact his businesses through taxation and market stability.

3 things in business

  1. ALICEs and HENRYs and DINKs, oh my! Coverage of the economy is full of these weird acronyms and status labels, with more and more cropping up every day. (Ever heard of a "corporate girlie"?) To stay on top of these ever-expanding tribes, BI's glossary has you covered.
  2. They're rich, but they're also really old. America's millionaires are getting older, and they're waiting longer to pass down their wealth. That's a big problem for aspiring millionaires. Younger workers can't amass wealth at the same rate they used to, and it's harder and harder to be self-made.
  3. AI is set to dominate the ad industry's biggest event. The Cannes Lions ad festival kicks off this week, and AI is on everyone's minds. Businesses are exploring how they can use the tech to automate ad campaigns and for copywriting — but some worry about the loss of creativity.

In other news

What's happening today

The Insider Today team: Dan DeFrancesco, deputy editor and anchor, in New York. Jordan Parker Erb, editor, in New York. Hallam Bullock, senior editor, in London. George Glover, reporter, in London. Annie Smith, associate producer, in London. Amanda Yen, fellow, in New York.

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