Market Insights: 🤖 A.I. Industry Update: "Show me the money"

💸 A.I. Enters The “Show Me The Money” Phase

The AI frenzy of 2023 and 2024 has cooled down and entered the "show me the money" phase. Earnings season has shed a lot of light on where we stand.

So it’s time for an update on the industry and a look at the companies successfully deploying AI, monetizing it, and the potential opportunities for investors.

This week's Market Insights is an 7 minute read! (or read the full article)

🎧 Would you prefer to listen to these insights? You can find the audio version on our Spotify, Apple Podcasts or our YouTube!

Quote of the week

"The future of AI is not about replacing humans, it's about augmenting human capabilities."

Sundar Pichai, CEO of Google

What Happened In The Markets This Week?

A lot of these stories involve President Trump across multiple industries, but that just seems to be the market these days.

Here’s a quick summary of what’s been going on:

🧑‍⚖️ US trade court says Trump’s global tariffs are illegal (Financial Times)

• The U.S. Court of International Trade just ruled Trump's April 2 global tariffs illegal, saying he overstepped by using emergency powers not meant for trade policy.
• The decision knocks the legs out from under Trump's tariff agenda and could stall or even unravel recent trade talks.
• This ruling reduces near-term tariff risk, which investors liked. Stock futures and Asia markets saw gains. Sectors sensitive to trade flows, like semiconductors, retailers, and automakers, could benefit from a more stable import landscape. However, expect volatility because the White House said it would launch an appeal (As of 30th May, a federal appeals court temporarily reinstated most tariffs).
• While Trump’s tariff plans just hit a legal wall, investors should watch for trade deal resets, not new levies. 

💸 Nvidia beats Wall Street expectations even as Trump tamps down China sales (The Guardian)

• Nvidia beat revenue expectations with $44.1B in Q1, despite missing on EPS and taking a $4.6B hit from excess China-focused chip inventory.
• U.S. export restrictions blocked billions in AI chip sales to China, but Nvidia offset losses with strong global data center demand and Gulf region growth.
• China’s market is slipping out of reach, but Nvidia’s global dominance in AI hardware keeps it firmly in the driver’s seat. With $45B guidance and surging Middle East orders, Nvidia remains a core AI play, even with geopolitical brakes on.
• So while the company may be shut out of China, it's still cashing in on the AI gold rush everywhere else.

☢️ Trump signs orders to overhaul Nuclear Regulatory Commission, speed reactor deployment (CNBC)

• Trump signed orders to overhaul the Nuclear Regulatory Commission, fast-track reactor approvals, and authorize new builds on federal land.
• Moves aim to cut red tape, revive mothballed reactors like Three Mile Island, and fuel data center demand amid the AI boom.
• This is bullish for uranium miners, nuclear utilities like Constellation, and AI-linked energy plays. Accelerated permitting could ease long-standing nuclear bottlenecks and attract more private investment, especially from tech giants needing stable power.
• Trump’s orders could jolt the nuclear sector out of gridlock, just in time for AI’s insatiable energy appetite. Europe’s even pivoting back to nuclear.
• Check out our Global Uranium Mining Screener and our Global Nuclear Energy Screener for stock ideas in this space.

To see our take on these and other market stories, simply check out the

full article!

• 🌊 Trump’s push to break China’s mineral dominance paves the way for a deep-sea gold rush (CNBC)

• 👜 LVMH warns Chinese are curtailing travel, overseas spending (Fortune)

• 🚘After a nearly 6-month search, Stellantis names former Jeep boss as its new CEO (Sherwood)

Now let’s dive into the main piece!

🤖 AI Check-Up Q2 2025: Who’s Winning, Who’s Fading, and Where’s the Value?

Early last year, we wrote about AI. If you missed those articles, you can find them here:

• The case for and against AI being a bubble?
• Gen AI use cases and limitations
• The AI value chain

It’s time for an update, which we will do through the lens of the AI value chain.

To recap, McKinsey & Co. identified 6 levels to the AI value chain:

• 🧠 Hardware: Datacenter AI infrastructure and chips
• ☁️ Cloud Platforms: Compute power as an on-demand service
• 🧬 Foundation Models: The Large Language Models that make the magic happen
• 🛠️ Model Hubs and MLOps: Tools to manage the development process
• 📱 Applications: The tools available to end users
• 🧑‍💼 Services: The consulting companies that help companies navigate their AI strategies

The important analogy to this value chain is the early years of the Internet. 

While the dotcom frenzy focused on hardware providers like Cisco, the real value was created in the applications that were later built on the web: Google, Amazon and Meta in particular.

Let’s see where we are now…

⚙️ Computer Hardware: Trends maturing and questions arising 

The early winners in the AI arms race were the companies that provided the GPUs (Nvidia) and other hardware required to scale data centers.

The largest cloud providers have poured hundreds of billions into AI infrastructure, and quarterly investments continue to rise, although the acceleration has slowed somewhat.

Not all CapEx goes into AI infrastructure (particularly for the likes of Amazon, Tesla, and Apple), but it’s a reasonable proxy for hardware investments.

Quarterly Capex by Big Tech 

The tailwinds for companies like Nvidia, TSMC, and Broadcom are firmly in place. But the trend has matured, so the questions now revolve around:

• 📈 Valuation vs likely growth rates: Growth in spending has been more sustained than many expected. But stocks priced for perfection would still be sensitive to any sign of a slowdown.
• 🥊 Competition: The growing market for AI chips and other hardware has led to growing investment in the sector. Chinese companies have an additional incentive in the form of the US export ban
  • SMIC plans to start manufacturing AI chips for Huawei next year. Eventually, Chinese companies may have something that competes with Nvidia’s GPUs, though they would no doubt become yet another geopolitical football.
• 💵 Margins: When competition intensifies, margins tend to come under pressure. Companies like Nvidia and TSMC have IP and capacity that’s hard to replicate. But for companies selling more generic equipment, margin pressure is likely.

☁️ Cloud Platforms: Growth materialising, but at a cost

AI is driving growth for the world’s largest cloud providers (Amazon Web Services,  

Microsoft Azure, and Google Cloud) - and for smaller rivals like Oracle, IBM and in China, Alibaba and Tencent. 

They will be relieved to see their CapEx beginning to bear fruit.

Newly listed CoreWeave has grown revenue ten-fold to $2.7 billion in 24 months, but it’s currently spending billions of dollars to do that. 

Coreweave is a specialist AI cloud provider, so it’s a great pure-play entry - if you can justify the arguably frothy valuation.

🏗️ Foundation Models: Rapid progress, rising competition, and looming limits

The LLMs powering generative AI continue to impress with their capabilities, and they’re seeing increased traffic too. 

The chart below from OpenRouter shows how model use has accelerated since the beginning of the year.

LLM Token Usage Last 12 Months - OpenRouter

…and here’s the breakdown for the week ending 19th May (in billions)…

LLM Token Usage for Week Ending 19th May - OpenRouter

✨ The table shows that the market is very competitive. But it also shows that having access to potential users (ie. Google and Microsoft) goes a long way.

As far as capabilities go, it’s even more competitive. 

Websites like Livebench score LLMs for specific tasks like reasoning, coding, data analysis, and language. Typically, a different model leads in each category, but only until another, more powerful model is released.

Here’s how model intelligence has progressed since 2022. 

✨ It’s notable that open source models like Meta’s Llama, DeepSeek, and Qwen lag slightly, but catch up with the best models in a matter of months.

LLM ‘Intelligence’ 2022 to 2025 - ArtificialAnalysis

Something that’s becoming increasingly apparent is that a lot of platforms and tools are model agnostic. 

Two popular tools, Github Copilot (below) and Perplexity AI Search, let you choose from a list of models, including all the top-performing ones.

Competition between the model providers is likely to remain intense as applications give users a choice ranging from free, open-source LLMs to the very latest and most powerful models. 

✨ LLM models are likely to face scaling issues at some point - possibly quite soon, as some believe. 

If, or when that happens, the pace of model improvement will slow, so they could become even more commoditized.

The bottom line is that having customers is probably more important than having the best model.

📖 To get an update on the rest of the AI value chain, check out the full article! We cover:

🧰 Model Hubs and MLOps:

Critical infrastructure, limited investment access

📲 Applications:

Adoption rising, but the killer use case remains elusive

🧱 Data:

Digital gold with compounding strategic value

🛠️ Services:

High demand, mixed results, and overlooked potential

🤖 AI Agents

Where are they?

💡 The Insight: AI as a Lens, Not Just a Sector

🤖 AI is touching every industry: It’s no longer just a tech story. Going forward, every investment case will need to consider how AI could help or hurt a business.

🔍 Some key questions for investors are:

• 🛠️ Can this company leverage AI to improve its competitive position?
• ⚠️ Is the company at risk of being disrupted?
• 📈 Does it have a clear, effective strategy to adopt AI and stay relevant?

🏰 Some Moats Could Disappear

AI is eroding long-standing competitive advantages, especially in software, where tools can be replicated cheaply.

Adobe is a key example: it faces disruption from free AI tools but could remain dominant by helping creators stand out in a crowded market.

💹 AI Adoption Drives Earnings Growth

All types of companies can benefit through higher sales and lower costs through implementing AI in their business, which ultimately boosting margins.

Look at what Alphabet, Microsoft and Meta have been able to do already just over the last 2 years to their operating margins.

• Alphabet: 25% → 31%
• Microsoft: 41% → 45%
• Meta: 28% → 42% 

Alphabet Revenue, Earnings and Cash Flow - Simply Wall St

💬 Join the discussion by leaving a comment!

Where along the A.I. value chain

do you have investment exposure?

Key Events Next Week 

This week, there are a few key employment reports and interest rate decisions in Europe and Canada.

Tuesday

• 🇪🇺 Eurozone Core Inflation Rate (Flash)
  • 📊 Previous: 2.2%. Forecast ↘️ 2.1%
  • ➡️ Why it matters: A dip in core inflation boosts the case for ECB rate cuts sooner rather than later.
• 🇺🇸 US JOLTS Job Openings (Apr)
  • 📊 Previous: 7.192M. Forecast ↘️ 7.05M
  • ➡️ Why it matters: Fewer openings suggest the labor market is loosening, raising the odds of Fed rate cuts.

Wednesday

• 🇦🇺 Australia GDP (QoQ) (Q1)
  • 📊 Previous: 0.6%. Forecast ↘️ 0.5%
  • ➡️ Why it matters: A softer print pressures the RBA to stay cautious, while a beat could lift the Aussie dollar.
• 🇨🇦 Bank of Canada Rate Decision
  • 📊 No change expected, currently 2.75%.
  • ➡️ Why it matters: With rates likely on hold, all eyes are on the BoC’s tone for clues on future cuts.

Thursday

• 🇪🇺 Eurozone ECB Interest Rate Decision
  • 📊 Expected cut from 2.40% to 2.15%
  • ➡️ Why it matters: With a cut expected, markets will focus on signals about how much further the ECB plans to ease.

Friday

• 🇨🇦 Canada Unemployment Rate (May)
  • 📊 Previous: 6.9%. Forecast ↗️ 7% 
  • ➡️ Why it matters: A rise in unemployment could strengthen the case for Bank of Canada rate cuts.
• 🇺🇸 US Non-Farm Payrolls (May)
  • 📊 Previous: 177K. Forecast ↘️ 130K
  • ➡️ Why it matters: A major miss or beat here can move everything from Fed expectations to stocks, bonds, and the dollar.
• 🇺🇸 US Unemployment Rate (May)
  • 📊 No change expected, currently 4.2%
  • ➡️ Why it matters: A steady or higher rate signals cooling in the labor market, boosting the case for Fed easing.

Earnings reports have slowed to a trickle. There are a just a few large caps due to report over the next few weeks, mostly software and retailers:

• Broadcom
• CrowdStrike
• Dollar General
• Dollar Tree
• MongoDB
• Docusign

Until next week, invest well.

Simply Wall St