Tech bubble fears? Follow the cash

US hyperscalers (technology giants like Microsoft) are committing hundreds of billions of dollars to data centres, chips and power infrastructure. That has driven strong performance from their suppliers – Asian technology leaders, including Samsung Electronics and SK Hynix. 

This may look like one AI trade, but one company’s capital expenditure is another company’s revenue. Their share prices may be moving together, but their economics are not. 

So how do investors tell them apart? I start with cash generation.

One AI trade, two different realities

The hyperscalers are buying vast amounts of computing capacity today, while still needing to prove that AI will generate an adequate return on that investment tomorrow. The suppliers, by contrast, are already seeing that spending appear in revenues, earnings and cash flows.

That doesn’t make Asian hardware companies risk-free. The semiconductor industry remains cyclical. Customers can cut orders, supply can catch up and today’s exceptional margins won’t last forever. However, I think that asking how long the boom will last is very different from asking whether it will arrive at all.

Cash flow reveals the divide

Many Asian semiconductor companies are generating rising profits and building stronger net cash positions. At the same time, the free cash flow of several hyperscalers is coming under pressure as capital expenditure accelerates. The weakening cash-flow profile of the buyers is, in many respects, the mirror image of the strengthening profile of the suppliers.

This matters if the environment becomes less forgiving – whether because of structurally higher interest rates, weaker economic growth or fading enthusiasm for AI infrastructure. In that environment, balance-sheet strength will become increasingly important. 

I would rather own businesses already converting demand into cash flow than those still relying on future monetisation to justify today’s borrowing and spending.

Korea’s cash-rich chipmakers

I think Korea’s memory-chip leaders illustrate this point. Samsung Electronics and SK Hynix are benefiting from robust demand for advanced memory chips, while accumulating substantial cash resources. Improving shareholder stewardship in Korea is also encouraging more of that cash to be returned to investors through dividends and share buybacks. For me, this brings together a powerful industry cycle, stronger balance sheets and a potentially more shareholder-focused approach to capital allocation.

Who has already been paid?

The market may continue to treat hyperscalers and Asian hardware suppliers together. But I think that’s too simplistic. It overlooks a crucial distinction between the companies funding the boom and those profiting from it. 

What I’m watching now is whether supplier orders and cash conversion remain resilient if the spending from hyperscalers begins to slow. Those risks appear low and manageable for the foreseeable future. I’m also watching how the cash-rich hardware names allocate capital between shareholder returns, employees and investments, such as research and development and additional capacity. Getting the balance right will be critical to sustaining their competitive advantage over the long term.

Until then, the most useful question is not whether I think AI is a bubble. I’m more interested in which companies are turning the boom into cash. 

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