Name: AI story shifting from software to hardware in 2026: BNP Paribas AM
Uploaded: 2026-01-08T04:47:36.826Z
Duration: 4 min 28 s
Description: Ecaterina Bigos of BNP Paribas Asset Management discusses the shift in AI capex to investments in hardware and infrastructure build-out in 2026.

Ecaterina Bigos of BNP Paribas Asset Management discusses the shift in AI capex to investments in hardware and infrastructure build-out in 2026.

San Francisco

The release of Open AI's ChatGPT has accelerated the development of artificial intelligence and warnings about its impact on society.

Rise of AI

BNP Paribas Asset Management reports that the global AI investment narrative is moving away from software and toward hardware, infrastructure, and energy needs, as seen across major markets like the US, Korea, and Japan. Memory chip shortages and increased demand for compute capacity are driving growth in infrastructure and utility sectors, with companies like Hyundai Motor benefiting from AI-adjacent initiatives.

The firm notes that capital expenditure (CapEx) for AI is expected to remain high, with major firms allocating up to 70% of cash flow and increasingly turning to debt financing. Despite concerns about potential impacts on earnings, current cash flow and debt market demand are strong, supporting continued investment through 2026.

AI story shifting from software to hardware in 2026: BNP Paribas AM

Yeah, I think this is more a global theme. AI, it's not just creates, obviously, creates part of the supply chain, but this is a global theme. And if you look across, you know, Korea, Japan, you look at the US, the trend was similar, right? And I think this is driven largely by the need to build that capacity around, obviously, compute for AI. And ultimately, that compute is based on the memory, which at the moment is deemed to be still in shortage by the forecast of the build-out that needs to be put in place. So that element has lifted that infrastructure companies. And again, I would say those memory chips are probably the leaders at the beginning of this year. But if you look at other companies like energy sources, utility companies that are equally have benefited from that uplift on sentiment around the AI and the capacity that it has for 2026 and beyond, yeah. Yeah, and some of the AI adjacent sectors like power, memory chips, and robotics, I mean, Hyundai Motor, an auto company coming out with some humanoid robot initiative, and then the stock surge like 15% in a single session. What is going to work in 2026? I think we're sort of done with the software angle now and moving on to the physical needs and the infrastructure story, the memory story. Do you agree with my assessment? Yeah, absolutely. I think we call it kind of the pyramid. The pyramid has an inverted. So that software story has not emerged yet in a very consolidated way. Yet, I think there's a stories around where we can implement the software, but a large portion at the moment of the story of AI is the build-out, is the hardware, is the energy, is the building out of the infrastructure, is the compute power, is the cheaper that I talked about. So, and that's why the market is leaning on. And I would say for a large part of 2026, I think the build-out story is still very much valid. We're not yet through that CapEx expenditure that we've seen. And then if you have to take away the US story, which has started a little bit earlier than I would say China. When you look at China, the CapEx story is even far more behind. So China has to build even a little more than US. So the CapEx story is still very much present in 2026, if not 27. And then later on, and I think where the market is gonna pay a lot of attention is how is the pyramid inverting? Where do we see the applications, right? Away from kind of the build-out of the infrastructure, how do companies looking to apply, but more importantly, how to look into monetize that investment in the capital expenditure. I wanna get back to the AI trade and have you talk to us about that. Obviously, a lot of folks, including yourself, are expecting volatility to continue in markets around the AI trade, simply because, I mean, earnings expectations are just so aggressive. The bar gets pushed higher and higher. And I wonder how you think about this, because right now, the good news is I guess the CapEx ramp is continuing, but they're funding that from cashflow still. And they've probably, they're pretty much maxed out on that. I think the average is about 70% of their cashflow for the big AI names are going towards CapEx. And now they're being forced to turn to funding through debt. Does that concern you? Is that something that we should be watching and could that have a material impact on their earnings? Right, and as you said, look, I think CapEx, I think the cashflow generation, it's still very solid. And I would say the ultimate expectation, I think the different estimates around the CapEx from this magnificent, or the hyperscalers, not magnificent, seven hyperscalers, it's probably in the range of 500 billion for 2026. The cashflow generation expectations are surpassing that. So I think you could say that comfortably to continue that CapEx expenditure in 2026. But what increasingly company have done, as you said, they've tapped the debt market. And certainly this is an area that we're gonna monitor. Again, that doesn't necessarily impact the equity market, but it's gonna relate to the debt market and particularly investment grade credit, dollar credit in US. Certainly we've seen a rise of that issuance, but also the appetite has been matched. So ultimately not a concern yet. Of course, if we get into a situation where we have excessive borrowing and the appetite is a little bit more subdued, then clearly you will have a lot more expectations spreads widening. But again, that's not the situation. So I think the demand supply, I think it's in a very good place as we look at 2026.

The Senate on Thursday voted to advance a resolution that could limit President Trump's ability to continue military action in Venezuela without congressional approval. It comes as the president told the New York Times that he could see the U.S. having direct oversight of Venezuela for years.

Caracas

Venezuela Strikes

Trump says U.S. could have direct oversight in Venezuela for years

The crew at the International Space Station will return home early because of what NASA is calling a medical concern with a crew member. CBS News space consultant Bill Harwood has more details.

Texas

ISS crew returning due to medical issue for first time in NASA history

President Trump plans to meet with Colombian President Gustavo Petro after Mr. Trump issued threats following the U.S. operation in Venezuela that led to the capture of Nicolás Maduro. CBS News' Lilia Luciano reports from Bogotá.

Washington

Trump to meet Colombia’s Petro after tensions over Venezuela operation

The United Kingdom aided the U.S. in an operation to seize a sanctioned oil tanker linked to Venezuela in the North Atlantic. CBS News' Ramy Inocencio reports.

UK helped the U.S. seize an oil tanker linked to Venezuela

U.S. forces on Wednesday seized two oil tankers, one in the North Atlantic and the other in the Caribbean, as part of the Trump administration's blockade of Venezuela's oil exports. Secretary of State Marco Rubio said the U.S. will take between 30 million and 50 million barrels of oil and sell it in the marketplace.

U.S. to control money from Venezuela oil sales after tanker seizures

Nick Reiner was set to be arraigned on murder charges on Wednesday in the killing of his parents Rob and Michele Reiner. But his defense attorney, Alan Jackson, told the judge he could no longer represent the 32-year-old. After the hearing, Jackson said he couldn't say why he withdrew for legal reasons, but added, "Nick Reiner is not guilty of murder."

Los Angeles

Nick Reiner's lawyer withdraws from case, says Reiner 'is not guilty'

NASA is considering a rare early return of its crew from the International Space Station over an unspecified medical issue involving one of the astronauts, after canceling a planned spacewalk that had been scheduled for Thursday (January 8), the agency said.

NASA mulls early ISS crew return due to astronaut medical issue

Washington says it has intercepted two Venezuela-linked oil tankers in the Atlantic as part of President Trump’s hardline effort to control oil movements across the Americas, claiming the vessels were part of a so-called shadow fleet used to ship sanctioned crude from Venezuela and Iran.

UK helped U.S. military to seize sentenced oil tanker on way to Russia

Minneapolis erupts in protests after a woman is shot by a federal agent – Video of the incident sparks outrage nationwide.

Minneapolis

ICE shoots woman: Incident sparks protests across the U.S.

President Masoud Pezeshkian has urged security forces to show restraint, distinguishing peaceful protesters from armed rioters. However, rights group Iran Human Rights says at least 27 protesters have been killed, while Iranian media report 15 deaths, including members of the security forces.

Tehran

Iran police officer killed as cost-of-living protests enter 12th day

The decision comes as Trump approaches the first anniversary of his second term. Since returning to office, he has already moved to exit the World Health Organization, the Paris climate agreement, and UNESCO, while cutting funding to several UN bodies.

Trump orders U.S. withdrawal from 66 international organisations

Iran's army chief threatened pre-emptive military action on Wednesday over the "rhetoric" targeting the country, thought to be in reference to threats made by US President Donald Trump last week, warning that if Tehran "violently kills peaceful protesters," Washington would "come to their rescue."

Iran army chief threatens pre-emptive attack after Trump threats

U.S. forces have boarded a Venezuela-linked sanctioned oil tanker in the North Atlantic after pursuing it for weeks. The U.S. military also announced the seizure of a sanctioned tanker ship in the Caribbean Sea, the second vessel taken by American forces on Wednesday.

U.S. seizes two more sanctioned oil tankers with links to Venezuela

A woman was fatally shot by an ICE officer Wednesday morning in Minneapolis, the Department of Homeland Security says. CBS News' Nicole Sganga reports from the scene.

Protesters gather after ICE shoots and kills woman in Minneapolis

The U.S. seized a Russian-flagged oil tanker that was being shadowed by a Russian submarine on Wednesday (Jan. 7), after a more than two-week-long pursuit across the Atlantic as part of a U.S. "blockade" of Venezuelan oil exports.

U.S. seizes Venezuela-linked oil tanker after weeks-long pursuit

Nick Reiner, the son of Rob and Michele Reiner, is set to be arraigned in the killing of his parents, Rob Reiner and Michele Singer Reiner. It comes as details emerge about his time in custody and how his mental health history could play a role in his case.

Nick Reiner due in court on murder charges

Flights across France and Belgium and Eurostar train services have been severely disrupted by the winter weather.

Paris

Eurostar trains and hundreds of flights cancelled amid heavy snowfall

President Masoud Pezeshkian on Wednesday urged security forces to distinguish between what he called rioters and protesters, urging them not to target peaceful demonstrators.

Iran's President urges security forces not to target protesters

In Iran, protests that broke out on December 28th over the soaring cost of living look set to continue. Security forces fired tear gas at demonstrators in Tehran's Grand Bazaar on January 6: without giving numbers, Iran's IRNA news agency said 'some' people were arrested.

Death toll rises as Iran's security forces clash with protesters

Members of the North Atlantic Treaty Organization (NATO) are reacting to the Trump administration's comments on a potential Greenland takeover from Denmark.

Nuuk

European leaders blast Trump over Greenland takeover discussions

Donald Trump says Venezuela will hand over as much as 50 million barrels of oil and he will control the profits.

Trump says Venezuela will turn over 30-50 million barrels of oil

Britain and France have said they could send troops to Ukraine if a ceasefire is agreed. The pledge came at a Paris meeting of 30 nations, including the US, on security guarantees demanded by Kyiv before any peace deal.

London

Ukraine Invasion

UK, France ready to deploy troops in Ukraine after ceasefire

Colombian President Gustavo Petro said he would “take up arms” in the face of threats issued by US President Donald Trump.

Bogotá

Colombia vows to defend its sovereignty amid Trump’s military threats

Israeli forces storm Birzeit University in the occupied West Bank soon after students begin a sit-in in solidarity with jailed Palestinians.

Jerusalem

Middle East Conflict

Israeli school assault wounds dozens of Palestinians in West Bank raid

The White House says U.S. President Donald Trump and his team are considering a range of options in efforts to acquire Greenland as the ouster of Venezuelan leader Nicolás Maduro continues to reverberate in the Western Hemisphere.

Trump sees acquiring Greenland as a national security priority

The United States for the first time backed a broad coalition of Ukraine's allies in vowing to provide security guarantees that leaders said would include binding commitments to support the country if it is attacked by Russia again.

U.S. backs security guarantees for Ukraine at summit of Kyiv's allies

South African President Cyril Ramaphosa has expressed deep concern over recent U.S. military action in Venezuela, calling for the immediate release of Venezuelan President Nicolás Maduro and his wife.

Soweto

Ramaphosa urges UN action after U.S. capture of Maduro

At least 25 people have been killed in Iran during the first nine days of protests that started in the bazaar of Tehran over the plunging value of the currency and soaring inflation, according to rights groups. This video contains graphic images.

Rights groups say at least 25 dead in Iran protests

The administration of President Donald Trump is planning to meet with executives from U.S. oil companies later this week to discuss boosting Venezuelan oil production after U.S. forces ousted its leader Nicolas Maduro, according to a source familiar with the matter.

Trump administration sets meetings with oil firms on Venezuela: source

Uncertainty in Venezuela has crossed into neighboring Colombia, especially after U.S. President Donald Trump suggested Colombian President Gustavo Petro could face U.S. action following the capture of Nicolás Maduro.

AI story shifting from software to hardware in 2026: BNP Paribas AM

Breakdown

See The Full Story

Rise of AI