HSBC’s Key Tech Insights: measuring models

Following our last update in May, we update our key discussion points with focus on Western LLM development for which we retain a favourable view, as well as AI vs software and hyperscaler capex. We expect increasing LLM capabilities to drive demand for compute capacity supporting hyperscalers' capex while there is growing evidence that the SaaSpocalypse narrative is misplaced. Data centres remain constrained by power supply but in-house silicon programs (ASICs) both reduce dependence on higher cost GPUs and help to deliver better price performance. We see a strong case for proprietary models to lead in the West, including larger compute, supporting the AI value chain; hyperscalers monetise AI effectively, our key picks are Alphabet, Amazon and Microsoft, all rated Buy. SpaceX's higher USD150 TP reflects this trend, Hold rating maintained.