Wall Street says the chip selloff is a gift: $1.1 trillion in AI spending is coming

Chips took a beating in July, and if you sold in a panic, take a breath. On a CNBC segment earlier this week, Wells Fargo chief equity strategist Ohsung Kwon and Strategy Asset Managers CEO Tom Hulick both argued the semiconductor pullback is a positioning reset ahead of what could be the largest capital spending wave in computing history. Their case rests on a single, staggering number Wells Fargo just published, and it points directly at the tickers retail keeps dumping.

The $1.1 Trillion Reason

Kwon's team raised its capex estimate for the big four hyperscalers to $1.1 trillion in 2027, roughly 25% above consensus and a jump from about $800 billion this year. In Kwon's words, "Our analysts actually raised their 2027 capex estimates to 1.1 trillion from just the big four companies. And that's about this year is about 800 billion. So that's actually about 25% above where consensus is. So if that actually comes to fruition, then I think we're talking about a huge upside for semis overall."

The commitments are already visible in filings. NVIDIA (NASDAQ:NVDA) sits on $119 billion in total supply-related commitments and guided fiscal Q2 revenue to $91 billion. Micron Technology (NASDAQ:MU) guided fiscal Q4 revenue to $50 billion, plus or minus $1 billion. Those are demand signals backed by binding commitments.

Why the Selloff Was a Positioning Reset

Kwon's second point matters more. "I think positioning has reset. I think there is a bull case heading into the earnings season. And I think hyperscaler capex the trend is going higher. So I think this earnings season will be another catalyst that the capex cycle is still very healthy." Fast money exited in July, forward valuations look reasonable again, and Q2 earnings could re-anchor the group.

NVIDIA is still up 13.3% year to date. Forward P/E sits at 23x. Micron trades at a forward multiple of roughly 5x with an analyst target of $1,491.95. July is tracking as one of the biggest momentum-reversal months in history, with a -55% correlation between first-half and July performance. Traders got flushed. The infrastructure kept building.

Where the Money Is Going, With Memory in Focus

Per Hulick's, "as the hyperscalers continue to invest... the forward looking potential for the memory sector in particular is going to be quite strong because memory is becoming one of the most attractive areas in the technology stack right now."

He is describing what Micron's fiscal Q3 already proved. Revenue landed at $41.46 billion, up 345.7% year over year, with Cloud Memory contributing $13.77 billion and HBM4 in high-volume shipments.

SanDisk (NASDAQ:SNDK) tells a similar story from the NAND side. Fiscal Q3 revenue hit $5.95 billion, up 251% year over year, with the Datacenter segment posting $1.47 billion in revenue, up 645% year over year. Shares are down 27.25% over the past month, yet still up 569.56% year to date. That pullback after that run reads as violent digestion within an intact thesis. SanDisk is up 10% on repositioning into memory, and Hulick thinks that is the tell.

His bigger claim is worth reading twice. "This is going to be one of the greatest bull markets that I think that we will experience. And it's just because of the technological evolution that we're seeing with AI, memory expansion, the speed of chips, how things are connecting together." Even Chinese open-source model development is viewed as a positive for compute demand, since more models mean more inference.

The Verdict, and the One Risk That Matters

The bull case is coherent. Hyperscalers are committing real capital, memory pricing is inflecting, and NVIDIA's data center franchise grew 92% year over year at 75.0% non-GAAP gross margins. If you were scared out of chips in July, the strategists on your screen think the July action lied about the trajectory. The one risk worth respecting is monetization. If hyperscalers raise capex again without showing revenue acceleration and a clearer path to profitability on those AI workloads, the next reset will be fundamental, and Q2 earnings season is where that fight gets settled.

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