Chipflation is the AI trade's next major test

Inflation may have cooled significantly in June, but it is still creating challenges for AI hardware, Julia Hermann, global market strategist at New York Life Investment Management, warns. She calls "chipflation"—the surge in prices for AI-related logic and memory chips—the next headwind that will test the AI trade.

"Hyperscalers face a balancing act of rising input costs — higher chip prices, as well as rising energy and utility costs — with an outlook for return on investment that is still several years away," Hermann said. Chip stocks have come under pressure as investors scrutinize the economics of the AI boom.

Sector leaders have tumbled, with investors selling memory makers and other hardware plays even as early earnings reports largely beat estimates.

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