Key Takeaways
- Ben Reitzes from Melius Research urges investors to capitalize on the ongoing technology sector downturn
- His investment preference leans toward semiconductor manufacturers such as Nvidia, Broadcom, Micron, and AMD rather than cloud service providers
- Microsoft’s artificial intelligence approach was labeled a “mess” by Reitzes, who questioned CEO Satya Nadella’s recent strategic shift
- The analyst views computing power as a multi-decade opportunity, drawing parallels to oil’s historical significance
- Major semiconductor index funds SOXL and SOXX experienced significant declines, though QQQ has gained 36% year-over-year
The technology sector witnessed a downturn this week, yet Ben Reitzes, who leads technology research at Melius Research, argues this presents a strategic entry point rather than cause for alarm.
During a Tuesday appearance on CNBC, Reitzes emphasized that similar market retreats have traditionally created lucrative investment windows, and current conditions appear no different.
“These have been opportunities in the past, and we just don’t really see any change,” he said.
Semiconductor Manufacturers Trump Cloud Infrastructure Players
Reitzes maintains positive ratings on multiple chip companies, including Nvidia, Broadcom, Micron, and AMD.
Meanwhile, he takes a more reserved stance toward cloud infrastructure giants such as Microsoft, Oracle, and Google.
His rationale is straightforward: cloud providers are investing massive capital into infrastructure development, with those funds flowing directly to semiconductor manufacturers. “They’re handing money to my other companies. It’s never going to stop,” he said.
He further noted that cloud companies have suspended share repurchase programs and are taking on debt to finance their artificial intelligence expansion plans. Semiconductor firms like Nvidia, however, continue distributing cash to investors.
“Why bother?” Reitzes said of investing in hyperscalers at this stage.
Microsoft’s AI Direction Under Fire
Reitzes directed sharp criticism at Microsoft CEO Satya Nadella, who recently announced the company would pursue a model-agnostic artificial intelligence strategy.
This past weekend, Nadella created distance between Microsoft and leading AI model developers like OpenAI and Anthropic — despite the company’s substantial investments in both organizations.
According to Reitzes, Nadella’s statements indicate the company lacks a coherent artificial intelligence plan and remains in experimental mode.
“They’re going to move to partial consumption, partial license… call me when they figure it out,” Reitzes said.
He stated he sees no compelling reason to invest in cloud infrastructure companies while they wrestle with fundamental questions about consumption-based versus subscription revenue models.
Microsoft shares climbed almost 2% on Tuesday notwithstanding the harsh assessment.
Computing Power as a Generational Shift
Reitzes positions artificial intelligence and computing capacity as a fundamental transformation spanning decades, not merely a near-term trading theme.
He estimates the world sits approximately three years into what may become a 20-year evolution. He drew comparisons between computing power and petroleum, suggesting compute will ultimately eclipse oil in global significance.
He also noted that companies not adopting AI are already losing ground to those that are. “Those who are adopting AI are going to absolutely kick the butt of those who aren’t,” he said.
Market Performance Breakdown
The Direxion Daily Semiconductor Bull 3X Shares ETF plummeted more than 23% at the time of Reitzes’ interview. The iShares Semiconductor ETF declined nearly 8%.
Reitzes identified concentrated exchange-traded fund positions in Korean memory chip manufacturers as a contributing factor to the sell-off.
The Invesco QQQ Trust has advanced 36% during the trailing 12-month period. The iShares U.S. Technology ETF has surged 49% across the identical timeframe.
