Key facts
- J.P. Morgan analysts see potential for a revival in the global AI trade following a recent pullback.
- The firm noted improved investor positioning and attractive valuations within the AI sector.
- J.P. Morgan retains a bullish stance on semiconductor stocks, citing healthy fundamentals and tight supply-demand conditions.
- The MSCI World Semiconductors and Semiconductor Equipment Index has risen about 48% year-to-date.
- J.P. Morgan remains cautious on software stocks due to intensifying competition and AI's impact on the sector's long-term outlook.
- The MSCI World Software and Services index has gained only 1.3% year-to-date.
J.P. Morgan analysts believe that a recent pullback in the global AI trade has created an environment conducive to renewed investor interest, particularly in semiconductor stocks. In a note released on Monday, the analysts, led by Mislav Matejka, stated that improved investor positioning and significantly fallen valuations across most AI areas, coupled with strong capital spending, could spur a re-engagement with the sector.
While acknowledging that tech may not return to past levels of success, J.P. Morgan sees a constructive fundamental case and ample opportunities within the AI complex. The firm pointed to continued earnings strength and growing evidence of AI monetization as factors that should support renewed interest. AI stocks had rallied at the start of the year but have since weakened due to concerns over capital expenditure and its immediate returns. AI-linked stocks experienced a notable plunge earlier this month following warnings from top AI executives about the risks associated with rapid development.
J.P. Morgan maintains a bullish stance on semiconductor stocks, citing healthy fundamentals, projected pricing growth into 2027, and supply-demand conditions expected to remain tight until 2028. Conversely, the brokerage remains cautious on software stocks, noting that intensifying competition and the pervasive influence of AI growth cloud the sector's long-term outlook. They suggested that a pair trade of semiconductors versus software could be re-entered, given the dramatic de-rating in software.
The MSCI World Semiconductors and Semiconductor Equipment Index, a global benchmark for semiconductor stocks, has seen a rise of approximately 48% year-to-date. In contrast, the MSCI World Software and Services index has gained only 1.3% over the same period.