RBC says AI weakness appears to be fueling biotech rally
XBI•Biotech gains and stock correlations
The SPDR S&P Biotech ETF XBI.P gained 17.1%, and the Nasdaq Biotechnology Index .NBI rose 22.5% between March 30 and August 10.
The influence of AI-related moves appeared strongest among larger healthcare companies, with GSK GSK.L, AstraZeneca AZN.L, Gilead Sciences GILD.O, Regeneron Pharmaceuticals REGN.O, AbbVie ABBV.N, Novartis NOVN.S, and Eli Lilly LLY.N among the drugmakers showing particularly strong inverse correlations with semiconductor stocks, the brokerage said.
"With as much as 50% of industry-wide price action potentially being driven by AI macro issues, we believe that biotech investors need to grasp the fundamentals of the AI space."
The brokerage estimates AI developments could account for 30% to 50% of near-term share-price movements in mega-cap healthcare stocks, compared with 10% to 18% for large-cap biotech and up to 5% for small- and mid-cap companies.
RBC sees risk appetite driving rotation
A sustained pullback in AI stocks could drive more money into biotech, RBC said, while renewed strength in technology shares could reverse the trend.
"Taken together we see investor risk appetite as a likely driver in deciding between these now inversely related markets," RBC analysts said, adding, "Biotech can offer attractive returns to those rotating out of tech."
AI weakness may be rotating capital into biotech
Weakness in artificial intelligence-related stocks may be helping fuel a biotech rally as investors shift money from volatile technology shares into healthcare stocks, RBC Capital Markets says.
Healthcare and AI stocks, which historically tended to move together, have become increasingly negatively correlated in recent months, RBC said, pointing to a potential rotation of capital between the sectors.
