With Doubts About Hyperscale Investment, Here Are 2 AI Plays I Like
As hyperscalers make the biggest infrastructure wager in history, there are two AI-related bets I believe in.
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The AI infrastructure buildout continues to power both the markets and the economy.
On Wednesday, two neocloud providers, CoreWeave, Inc. (CRWV) and Nebius N.V. (NBIS), posted quarterly results. Both stocks catapulted forward in trading on better-than-expected numbers and guidance. That said, CoreWeave had negative free cash flow of $5.7 billion in Q2 despite a huge surge in revenues. This was up by $1 billion from Q1 and more than double the $2.5 billion of negative free cash flow in the same period a year ago.
This continues a trend that has been in place throughout 2026. Both Oracle (ORCL) and Alphabet (GOOG) showed solid year-over-year non-GAAP earnings growth with their most recent quarters. However, Alphabet had nearly $6 billion in negative free cash flow in Q2, marking the first time the company had negative free cash flow in a quarter in the over two decades since the firm came public.
Oracle had negative free cash flow of nearly $24 billion in the fiscal year that ended in June. Free cash flow plunged over 90% year-over-year at Meta Platforms (META) in its most recent quarter.
Obviously, this is a development that is not sustainable over the longer-term. The market depends on these hyperscalers generating a positive ROI on their massive investments. Equities are signaling there is a high probability of this occurring.
I continue to harbor considerable doubts. The scale of this investment is truly eye-opening. The U.S. spent roughly $630 billion in today’s dollars to build out the entire interstate highway system. The five major hyperscalers combined will spend more than that in this fiscal year alone. This is by far the biggest infrastructure wager in history. Previous major paradigm technology shifts, whether it was the railroads, electrification or the internet, all resulted in huge boom-and-bust cycles. Will this time be “different”? I guess we find out together in the quarters ahead.
In today’s column, I want to circle back on two of the few AI-related bets I have in my portfolio that I have recently highlighted on these pages.
I gave a shout out to modular natural-gas power systems concern eRock, Inc. (EROC) back on July 22. The stock is up just over 20% since then and for a couple of good reasons. The company easily beat top- and bottom-line expectations with its second quarter earnings report that came out Tuesday. Its order backlog rose 10 times year-over-year to a record $1.7 billion. Management also announced it has received a 470 MW equipment purchase agreement with Anthropic.
Last week, I highlighted that I had just taken a significant initial position in Hewlett Packard (HPE). The stock was relatively cheap at just over 15-times forward earnings, and the company is seeing a surge in AI related demand. Both Goldman Sachs and Morgan Stanley reiterated buy ratings on the stock this week and the shares are up nearly 20% since my call out last week.
These are two names I believe will be in my portfolio for some time. I am not chasing their recent rallies. However, if either stock pulls back 10% I will likely add to these holdings via covered call orders. They are two reasonably priced AI related equities in an overbought market.
At the time of publication, Jensen was long EROC and HPE.
