Truist says tech selloff tests investors' AI conviction
QQQ•Truist analysts said a sharp selloff in technology shares is testing investors’ conviction in AI, though the decline has largely reflected lower valuations rather than weaker profit expectations. The S&P 500 technology sector fell more than 6% last week and semiconductor shares dropped more than 15% over 10 days.
1. Valuations under pressure
Technology shares came under pressure after reaching record highs earlier this month, as investors reassessed whether spending on AI infrastructure will generate profits quickly enough to justify lofty expectations. Truist analysts Keith Lerner and Jake Reid said the tech sector fell more than 6% last week and now trades at about 19.9 times forward earnings, near the lower end of its valuation range during the current bull market. Semiconductor shares dropped more than 15% over the past 10 days.
2. Rotation within equities
The weakness coincided with a rotation into energy, consumer staples and healthcare, which the analysts said suggests investors are reallocating within equities rather than abandoning risk assets. They noted that the Philadelphia Semiconductor index has gained more than 400% during the current bull market, while the technology sector is up 238% and the S&P 500 has gained 114%.
3. AI uncertainty remains
“The tech love-hate relationship continues, and that will likely remain a defining feature of this cycle,” the analysts said. They added that spending announcements, financing developments, earnings reports and demand signals are being amplified because potential outcomes from the AI buildout remain unusually wide, and said the pullback may not be over.
