Stalled AI rally has more eyeing old-guard stocks

There remain plenty of optimists, and the hottest tech stocks have been hounded by bubble worries off and on for the past few years, only to rebound from periodic dips to march even higher. Photo by Michael M. Santiago/Getty Images

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Of the 221 respondents to the latest poll conducted June 22-July 2, 53 per cent said they are inclined to buy more traditional company shares — and take gains from the tech-stock surge — heading into the last six months of the year.

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The view underscores worries that the valuations of some companies at the heart of the AI buildout — such as Nvidia Corp. and other major chipmakers — have run up too far, leaving them vulnerable to a pullback if big companies pull back on the hundreds of billions of dollars they have been investing in the new technology.

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The Philadelphia Semiconductor index, or SOX, has lost ground for the past two weeks after nearly doubling between the end of March and late June. South Korea’s Kospi index, which is heavily weighted to just two semiconductor makers, Samsung Electronics and SK Hynix, has also pulled back following a steep run-up.

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The recent shift has given the MLIV survey participants a less-rosy outlook for the two indexes in the second half, with 34 per cent saying the Kospi is the most likely to turn its huge upward move around and 22 per cent indicating the SOX is liable to do so.

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“With semis having put in a huge run and showing signs of profit-taking, investors are rotating into other sectors that might benefit from a robust economy, such as industrials,” said Steve Sosnick, chief strategist at Interactive Brokers.

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There remain plenty of optimists, and the hottest tech stocks have been hounded by bubble worries off and on for the past few years, only to rebound from periodic dips to march even higher.

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Retired Wall Street economist Jim Paulsen wrote in a recent post that “most investors are still worried about ‘missing out’ on the next leg of this new era bull run … than they are about suffering any major stock market setback.”

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Brendan Fagan, Bloomberg macro strategist, Markets Live, said, “We are seeing differentiation between companies where AI-driven earnings growth appears durable and those where expectations had become too optimistic. The result is that several of the Philadelphia Semiconductor index’s largest constituents now trade at or below their historical forward valuation multiples despite carrying robust growth expectations.”

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Market data at New York Stock Exchange.

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In terms of yields and the U.S. dollar, nearly 60 per cent of survey participants see yields and the dollar extending their moves in tandem through the end of the year, as both track the U.S. Federal Reserve’s interest-rate outlook, though they are more split on which direction they will go.

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Meanwhile, the de-escalation of the war between the United States and Iran has taken much of the steam out of bullish bets on oil. When asked which way they would trade the pair of U.S. stocks and oil, 73 per cent said they would sell oil and buy equities.

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—With assistance from Felice Maranz.

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