Wall Street's wider weakness keeps AI trade rolling
SPY•A lack of attractive alternatives and weak growth outside technology are helping sustain investors’ reliance on AI stocks, even as concentration raises the risk of a sharper downturn. JPMorgan Private Bank said 41 AI-related stocks accounted for 75% of S&P 500 returns since ChatGPT launched in November 2022.
1. AI dominates index returns
A group of 41 AI-related stocks 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, a share expected to rise to 45% in the fourth quarter.
2. Tech volatility and recovery
The S&P 500 fell 1.2% last Thursday as concerns about AI investment weighed on chip stocks, though 337 of its 500 stocks rose. The Philadelphia Semiconductor Index fell 20% in a little over two weeks, while Meta shares dropped 20% from their recent peak after investors reacted to its plan for a record $97.5 billion equity raise. The S&P 500 and Nasdaq have since rebounded.
3. Alternatives remain limited
Weakness elsewhere in the economy may be limiting rotation away from technology, the column said. HSBC strategists cut their maximum overweight equity position to neutral, while saying dips in the coming weeks “will likely be a good buying opportunity.”
