Nomura told clients that the current AI infrastructure investment cycle has probably not reached its high point, even after a pullback in semiconductor equities. The bank points to ongoing supply constraints and hyperscaler spending trends as reasons the cycle could extend further into 2027.
In a note distributed on Tuesday, analyst Aaron Jeng highlighted the magnitude of recent gains in chip stocks. The Philadelphia Semiconductor Index (SOX) advanced roughly 85% since Nomura's previous cycle update in March and about 211% since the firm revisited the AI theme in May 2025, before the market reversed some of those gains.
Jeng described the recent sell-off as a healthy correction after a rapid run-up, and he listed several risk factors that could weigh on the group. Those include component supply mismatches, pressure on hyperscalers' free cash flow in 2027, and macroeconomic headwinds tied to a rising yield environment.
Despite these headwinds, Nomura does not view the cycle as having peaked. The bank argues that hyperscaler capital expenditure may need to increase further into 2027, even if free cash flow is strained, a dynamic that is being amplified in part by sharply higher memory prices.
Nomura's internal tracking of global data center builds also points to upside beyond the firm's March estimates. On the supply side, the bank notes that greenfield data center projects that begin construction in late 2025 would generally require around two years to complete. That timeline implies capacity could be insufficient as 2027 approaches.
According to Nomura, the nature of the bottleneck may also shift. Rather than constraints originating primarily with major foundries such as TSMC, limitations may migrate toward smaller component suppliers that feed the broader ecosystem.
Jeng emphasized that pricing moves and ongoing upward earnings revisions would remain the primary catalysts for additional upside in semiconductor and infrastructure-related stocks. He added that Nomura would "still be buyers into weakness," signaling the firm sees continued opportunity despite noted risks.
Context and implications
The note frames the current market action as a pause rather than an end to an investment cycle driven by AI compute demand. Nomura's supply-side timelines and proprietary build tracking underpin its view that demand will outstrip near-term capacity, and that cost pressures - notably in memory - could compel sustained hyperscaler investment despite tighter free cash flow metrics.