What's next for the AI trade?
SOXX•AI-linked stocks, particularly hardware and semiconductor shares, sold off this week as investors questioned the durability of the capital-spending cycle; South Korea's Kospi fell 14% and the U.S. semiconductor index dropped 8%. Barclays said positioning, rather than a meaningful deterioration in fundamentals, drove the weakness.
1. AI shares under pressure
AI-linked stocks, especially in hardware and semiconductors, came under sharp selling pressure this week as investors questioned the durability of the capital-spending cycle. South Korea's Kospi fell 14% and the U.S. semiconductor index fell 8%.
2. Barclays urges selectivity
Barclays strategists led by Emmanuel Cau said positioning, rather than a meaningful deterioration in fundamentals, drove the weakness. They said the AI theme is entering a more mature phase, with valuations, funding needs, competition, regulation and revenue visibility facing greater scrutiny, and advised investors to be more selective.
3. Europe as a diversifier
Barclays said companies with proven business models, strong cash flows or healthy balance sheets, visible revenue streams and reasonable valuations were preferable. It said Europe's lower exposure to concerns about the AI buildout could make the region a diversifier, and that markets and sectors less exposed to the theme could offer relative protection if it unwinds further.
