Wall Street's wider weakness keeps AI trade rolling
QQQ•Weakness outside technology is helping sustain Wall Street’s reliance on AI stocks, which have driven much of S&P 500 returns, earnings growth and capital spending since ChatGPT launched. The article warns that concentrated exposure could make a reversal more painful.
1. AI dominates returns
A group of 41 AI-related stocks has accounted for 75% of S&P 500 returns, 80% of earnings growth and 90% of capital spending growth since ChatGPT launched in November 2022, according to JPMorgan Private Bank. Technology and communication services are expected to deliver 42% of the index’s forecast $783 billion in third-quarter earnings, rising to 45% in the fourth quarter.
2. Narrow market declines
The S&P 500 fell 1.2% last Thursday even though 337 of its 500 stocks rose, making it the index’s second-worst performance among nearly 3,000 days in the past three decades when more than 300 stocks gained. The S&P 500 and Nasdaq later closed at their lowest levels in over a month, while the Philadelphia Semiconductor Index dropped 20% in a little over two weeks.
3. Limited alternatives
The benchmarks have since rebounded, with an Anthropic IPO filing and other technology fundraising appearing to bolster confidence in the AI boom. The article says tepid growth elsewhere may be limiting investor rotation out of tech, while cautioning that a deeper decline remains possible; HSBC strategists cut their maximum overweight equity position to neutral.
