The big surprise for the year’s second half could be the AI trade powering higher, and it wouldn’t take much for that to happen.
HSBC strategists are warning that persistent scrutiny of the artificial-intelligence trade could be met with a surprise this year, if valuations of those stocks start to climb again.
What’s holding AI stocks back?
The AI trade has been a contentious one in recent months, with investors and analysts questioning its potential returns and valuation multiples.
HSBC strategists point out that AI stocks have underperformed the broader market this year, and some investors have even written them off as a bubble.
The main reason for this sell-off is the intense scrutiny AI stocks have faced, with regulators, investors, and media outlets raising concerns about their valuations and potential risks.
But could the tide be turning?
HSBC strategists believe that if AI valuations start to climb again, this could be a sign that the market is beginning to turn in favor of the AI trade.
They point out that while AI stocks have been under pressure, the underlying fundamentals of the sector remain strong, with many companies continuing to invest heavily in AI research and development.
This suggests that the sell-off in AI stocks may be largely driven by sentiment, rather than a fundamental shift in the sector’s prospects.
What this means for investors
For investors, this means that the AI trade may be due for a rebound, even if it’s not back to its previous highs.
HSBC strategists recommend that investors keep a close eye on AI valuations, and be prepared to jump in if they start to climb again.
This could mean opportunities for investors to buy into the sector at lower prices, but it also comes with risks, as the market can be volatile and sentiment-driven.
The key takeaway: if HSBC strategists are right, and the AI trade is about to power higher, investors will need to be prepared to act quickly and be willing to take on some risk.
