Analysts at JPMorgan believe it is premature to rotate out of artificial intelligence stocks, despite recent concerns surrounding the potential for an air pocket in AI infrastructure build-out. The recent dip in tech company shares has resulted in a steep sell-off for AI-leveraged companies, prompting investors to question the sustainability of the AI spending surge. However, the analysts maintain their optimism about the long-term growth prospects of the AI sector.
While there is some debate regarding the duration of the AI infrastructure build-out, concerns have been exacerbated by Nvidia’s upcoming product transition. Despite the near-term headwinds, investors remain largely convinced about the long-term drivers of AI spending. However, there is a growing tendency among investors to consider rotating out of AI stocks and into non-AI and macro levered companies.
JPMorgan believes that the current data and early 1Q earnings reports do not justify the optimism surrounding a recovery in non-AI sectors. The bank notes that spending in challenged verticals such as Telecom and Enterprise has not yet shown material signs of improvement, while Consumer spending appears to have reached a plateau with no clear indications of a rebound. Therefore, JPMorgan advises investors to exercise caution before rotating out of AI stocks based on expectations of a broad-based recovery.
