Sept. 28 — A recent pullback in the global artificial‑intelligence (AI) market has, according to J.P. Morgan analysts, left investor positioning cleaner and valuations more attractive, setting the stage for a potential re‑engagement in the sector.
Analysts’ outlook
Led by analyst Mislav Matejka, the firm’s note acknowledges that “tech may not return to past levels of success,” but stresses that the fundamental case for AI remains constructive. The analysts point to a range of opportunities within the broader AI complex, even as they caution that the sector’s long‑term outlook is clouded by intensifying competition.
Valuation and positioning
The brokerage notes that investor positioning in AI has become cleaner and that valuations have fallen significantly across most AI‑related areas. Capital spending, the note adds, is likely to stay strong despite recent concerns about a slowdown. Continued earnings strength and growing evidence of AI monetization are expected to support renewed interest.
Recent market performance
AI‑linked stocks rallied early in the year but have since weakened amid worries over capital‑expenditure spending and immediate returns. Earlier this month, several top AI executives warned about the risks of rapid development, prompting a sharp plunge in AI‑related equities.
Semiconductor focus
J.P. Morgan retains a bullish stance on semiconductor stocks, citing healthy fundamentals, pricing growth projected through 2027, and tight supply‑demand conditions expected to persist until 2028. The MSCI World Semiconductors and Semiconductor Equipment Index, a gauge for global semiconductor stocks, has risen about 48% so far this year.
Software sector caution
Conversely, the firm remains cautious on software, noting that AI‑driven growth continues to cloud the sector’s long‑term outlook as competition intensifies. While the analysts do not view software as a “good naked short” given the dramatic de‑rating, they suggest that a pair trade—re‑entering semiconductors versus software—could be attractive.
Performance metrics
In contrast to the semiconductor index’s 48% gain, the MSCI World Software and Services index has advanced only 1.3% this year, underscoring the divergent performance trends within the AI ecosystem.
Looking ahead
J.P. Morgan expects better trading ahead, driven by earnings strength and reduced macro‑volatility. The firm’s analysts argue that the recent market pullback has set the stage for a more disciplined re‑allocation of capital into AI‑related opportunities, particularly in the semiconductor space.
Reporting by Kanchana Chakravarty in Bengaluru; editing by Jochelle Mendonca.
Original reporting: Appleton, WI News Feed (HLL/CB) — read the source article.
