Mag7 has had a terrible month, with nearly $3 trillion in market cap wiped out and a 10% monthly decline—the worst in over a year.

Most of the money has flowed into chipmakers that are actually making money from AI.

Behind this is a pattern that has been proven time and again: during the internet bubble, the companies that really made money were not internet service providers, but those selling network equipment, CPUs, and fiber optics—like Cisco, Intel, and Corning.

Infrastructure makes money first; the application layer makes money later.

Now AI is replaying the same logic. For now, money is concentrated in infrastructure segments like GPUs, HBM, data centers, and power grids—not the application layer.

The judgment is simple: infrastructure construction isn’t finished yet. It’s still too early for money to shift massively and sustainably to the application layer.

The combined free cash flow of Alphabet, Microsoft, Meta, and Amazon tells the story. According to FT citing Bloomberg consensus estimates, 2026 will be the trough for these four companies’ cash flow, with a steep climb from 2028, hitting an all-time high by 2030.

In the first quarter of this year, Alphabet’s cash flow plunged 47% year-over-year, and Amazon’s sank 95%, as the four companies’ combined capital expenditure is set to rise over 60% year-over-year—all going into infrastructure.

The rate of spending is still outpacing the rate of revenue generation.

Although Google Cloud and Microsoft’s AI business are already contributing incremental revenue, the real profit conversion will only materialize after infrastructure is deployed.

So chasing application-layer AI stocks right now is essentially betting on something that hasn’t happened yet.

Infrastructure stocks like chips and power are still in the “selling shovels” phase and haven’t peaked.

Of course, selling shovels has its own risks—valuations are no longer cheap, and supply chain bottlenecks, power constraints, and geopolitical factors could disrupt this logic.

Whoever finishes building infrastructure first will be the first to capture the real profits from this cycle.

At least for now, it’s not them.