Kim Seong-hwan of Shinhan Investment & Securities analyzed the AI capital expenditure (CAPEX) stock rally during H1 (January–June), identifying three drivers: Anthropic's revenue growth and profitability, Alphabet's Q1 (January–March) Gemini revenue surge without cash flow depletion, and competitive LLM dynamics. Q2 (April–June) gains were driven by EPS upward revisions, though late-June news raised long-term demand concerns. With US stocks like Micron and SanDisk showing annualized volatility exceeding 100%, Kim emphasized focusing on EPS as the primary signal.
Three Drivers Behind H1 AI CAPEX Stock Rally
Kim identified three factors that fueled the H1 AI CAPEX stock rally. First, Anthropic's revenue experienced high growth and achieved profitability. Until last year, the market did not expect models to generate revenue and believed hyperscalers (companies operating massive data centers) were over-investing. Anthropic's early-year revenue surge dispelled monetization concerns.
Second, Alphabet reported high Q1 Gemini revenue growth without cash flow depletion. The company raised funds through corporate bonds, and credit spreads (the interest rate difference between corporate bonds and government bonds) showed no signs of widening. This suggested Alphabet had additional capacity to increase capital expenditure.
Third, the LLM competitive landscape intensified. Last summer Gemini, year-end and early-year Claude, and recently Codex attracted attention in succession. When users perceived existing LLM quality degradation or new models with improved performance emerged, traffic shifted. This dynamic forced LLMs into spending competition to maintain market share.
Q2 Stock Price Gains Driven by EPS Upward Revisions
Kim explained that Q2 AI CAPEX leading stocks' price gains were driven by solid near-term EPS upward revisions, which propelled medium-term moving averages upward. Long-term optimism about final demand led to call-option-style bets, expanding the deviation ratio (an indicator showing how far the current stock price is from the moving average in percentage terms) above moving averages.
Late-June News Raises Long-Term Demand Concerns
Starting in late June, news emerged that raised doubts about final demand and long-term growth sustainability. This appeared to burden AI CAPEX stocks with high deviation ratios. Reports indicated companies felt pressure from strategies maximizing token consumption by increasing AI usage. OpenAI's suggestion of token price cuts and the rise of Chinese AI with cheaper token costs challenged long-term CAPEX optimism. Meta's announcement of entering cloud services using excess computing power aligned with these concerns.
Kim noted this does not signal a trend reversal. The solid fundamentals of leading stocks, robust EPS estimate upward revisions, and the upward trajectory of medium-term moving averages remain unchanged. Once deviation burdens sufficiently decrease, sensitivity to positive and negative news may reverse.
US Memory Stocks Show Annualized Volatility Exceeding 100%
Kim observed that current stock market volatility is historic. US memory companies Micron and SanDisk show annualized volatility exceeding 100%. With stock prices rising significantly, sharp price swings can occur readily, and noise inevitably emerges. Responding to all noise in such a market is impossible. Investors must focus on signals. The signal to watch now is corporate earnings—specifically, EPS.
FAQ
What three factors drove the H1 AI CAPEX stock rally according to Kim Seong-hwan?
Kim Seong-hwan of Shinhan Investment & Securities identified three drivers: Anthropic's high revenue growth and profitability shift, Alphabet's Q1 Gemini revenue surge without cash flow depletion funded by corporate bonds, and the competitive LLM landscape where models like Gemini, Claude, and Codex competed for traffic, forcing spending competition.
Why does Kim Seong-hwan recommend focusing on EPS amid current stock market volatility?
Kim noted that US memory stocks like Micron and SanDisk show annualized volatility exceeding 100%, and stock price swings generate noise. In such a market, responding to all noise is impossible. He emphasized that investors should focus on the signal—corporate earnings, specifically EPS—as Q2 gains were driven by solid EPS upward revisions and robust fundamentals of leading stocks remain unchanged.
