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Is Tech Cyclical?

  • Writer: Patrick Lau
    Patrick Lau
  • Jul 2
  • 4 min read

Updated: Jul 6

“For that day” – Joubert in Three Days of the Condor

Historically Technology has always been cyclical whether this is due to product cycles, Windows upgrades or innovation. In this regard, it is not too different from commodities like oil & gas or gold with which most Canadians are familiar. We need to look no further back than Covid when everyone needed – immediately – a new computer, smartphone or tablet just so we could Zoom to talk to each other.


Cycles usually start when there is a sudden surge in demand and/or some supply constraint which leads to spikes in pricing followed by capacity responses. Often buyers order more than they need when they see their orders not fully filled – sometimes double or triple ordering. Another telltale sign is when there are a bunch of companies in the industry launching IPOs. One colleague of mine uses his mother, who is not an avid investor: “When my mom starts asking about a stock, that’s always the top!”

Figure 1 – When capex surges, it tends to lead to losses as reflected in negative ROIC [source: FactSet]
Figure 1 – When capex surges, it tends to lead to losses as reflected in negative ROIC [source: FactSet]

At the moment, anything AI is exhibiting practically all the signals above whether it is graphics processing units (Nvidia, AMD, ...), memory (Micron, Hynix, ...), hard disk drives (Western Digital, Seagate, ...), server assemblers (Dell, HP, ...) networking (Cisco, Arista, ...), electronic manufacturing services (Celestica, Jabil, ...), gas turbines (GE Vernova, Siemens Energy, ...), engines (Caterpillar, Cummins, ...), and indeed … the list is long. Numerous market strategists have pointed out that the current bull run in the market is largely driven by Technology.


What are arguments against the cycle peaking? One such argument is the current severe shortage in semiconductors – in particular DRAM & NAND – chipmakers like Micron & SanDisk are seeing an unprecedented level of pricing power. These vendors are traditionally price-takers even though the memory industry has evolved from being highly fragmented to an oligopoly. Not only that, the scuttlebutt is that these memory players get large upfront cash payments from customers covering at least one year of sales. As shown in the chart above, despite skyrocketing capex, their capex to sales ratios have not risen to historical peaks.


Right now, the surge in demand is far surpassing industry capacity along the entire supply chain. Everyone is doing all they can to ensure they can get enough to meet their needs. Hyperscalers capex are projected to be (Calendar Year Estimated) cy26e ~$700bn going to cy27e ~$900bn then onto cy28e ~$1tn. If you believe Nvidia’s CEO, he’s quoted as saying cy30e ~$3-4tn. So the Bloomberg projections below are too low!

Figure 2 – Bloomberg estimates hyperscalers capex will taper off just above $1tn but Nvidia says it should be $3-4tn [sources: Bloomberg, Globe & Mail]
Figure 2 – Bloomberg estimates hyperscalers capex will taper off just above $1tn but Nvidia says it should be $3-4tn [sources: Bloomberg, Globe & Mail]

It should be remembered that even if Jensen Huang[SH2.1] is right, the old adage “what goes up must come down” will eventually apply. In Tech land, things don’t have to come down to drive stocks lower. All it takes sometimes is slowing growth.


What could ultimately bring about this slowdown? Debt issuances to fund this capex are expected to more than double to $570bn this year and rise to $1tn in 2027. Because of surging token costs, many major companies like Amazon, Walmart, Uber and even Cisco & Meta, are reportedly reining in employee AI use. Despite software development is generally seen[SH3.1] as exactly the kind of job that would be cannibalized by AI, Tech industry experts like Gartner are saying AI coding costs will overtake an average developer’s salary. Maybe more people will focus on the very real environmental impact of these huge installations. Crusoe, a developer of data centers for the likes of OpenAI & Microsoft, has apparently delayed the construction of one. Any company will have to demonstrate to their shareholders a return on their AI spend… one day.


To cash in on the present AI euphoria, the projected IPOs coming to market will surpass the 2000 TMT bubble in percentage market cap terms. Many observers have noted that most of these deals are only floating a tiny portion of their shares, eg. less than 5% for SpaceX, suggesting the impact to the market is not that significant. However, one can be certain more shares and float will eventually come to the market.


When will the day of reckoning be you ask? Today, June 26th, 2026 does not look like it – Micron just reported another big “beat and raise” and their stock surged +12% in the aftermarket a couple of days ago.


References

• Exane strategist Dennis Jose May 8, 2026



Cumberland Private Wealth Management Inc. (CPWM) provides this commentary for informational purposes only. The information contained herein is based on sources that we believe to be reliable but may change without notice. The comments included in this document are general in nature, and professional legal, accounting, tax and investment advice regarding an individual’s particular investment needs and circumstances should be obtained. This presentation does not constitute an offer to sell or solicitation of an offer to buy a security in any jurisdiction. Past performance is not indicative of future results.

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