Capital Cycle: Semis still capital scarce vs tech hardware/software, US better than Europe/Asia

We are open to the narratives around long-term over-investment in AI and the historical analogs to the dot-com fiber build-out or 19th century railways. The difficulty is that these narratives are not timing devices.

We prefer to rely on our capital cycle scores for a tangible data-driven way to assess how the AI industry is evolving.

Today, our Capital Cycle scores are high and improving for North American semiconductors, while the scores for hardware and software are trending lower.

Over the past few years, we have seen a much more dramatic rise in software and hardware company net expenditures on capex and R&D, compared with relatively steady semi expenditures. At the same time, semiconductor operational ROIC has been improving while tech hardware operation ROIC is trending lower from high levels.

There is also a notable regional divergence. North American semiconductors are much more capital scarce than the European and Asian semi companies.