Despite the continued decline in stock prices, global investor sentiment towards artificial intelligence remains positive.
European and Asian markets have recorded daily declines, following the decline in the US market, as AI stocks and their valuations come under increasing pressure. pan-european Stocks 600 Major stock exchanges had a mixed start to trading on Wednesday, with Asia-Pacific markets falling, with stocks hitting a one-month low on Tuesday.
In the US, stock futures were little changed overnight after major US indexes widened their losses. AI stocks like Nvidia, Palantir, and Microsoft are among the stocks feeling the pressure.
“We think this is an AI-specific pullback. We don’t think this is the beginning of a bear market,” Emma Wall, head of investment analysis at Hargreaves Lansdown, told CNBC’s “Squawk Box Europe.”
In considering whether this is the “beginning of the end” or a moment that marks a “major setback,” Wall argued that while a “massive correction in global markets” has been delayed, the current economic downturn has not yet brought about this change.
Many markets outside the U.S., particularly Europe and the U.K., are already reflecting much of the negative news, he said, adding that he sees the pressure as sector-specific.
But Wall said it’s an opportunity to rebalance your portfolio because “even considering this week, most people have done very well, even in AI stocks.”
Mike Wilson, chief U.S. equity strategist and chief investment officer at Morgan Stanley, echoed this sentiment. He said the market has been in a correction for the past six weeks, but “this is not the end of the AI cycle.”
All eyes are on Nvidia, considered a leading figure in AI, as the company is scheduled to announce its third quarter results after the closing bell on Wednesday.
“Whatever happens tonight, whether it’s a rally or a pullback, the dip is probably going to be bought, but I think we’re in the middle of some correction right now,” Wilson said on CNBC’s “Inside India,” adding that he thinks we’re in an intermediate phase.
“The credit part of this spending is still in its infancy. So it’s just starting to raise money in the credit markets. It’s not like that money is going to stay there and they won’t use it. That means there’s probably time for these intermittent types of pullbacks,” he added.
Companies and investors engage in a delicate dance.
On the one hand, the AI Institute and its partners are making big promises and aggressive efforts, said Jason Thomas, head of global research and investment strategy at Carlyle. “But there’s no obligation for investors to believe their opinions,” he told CNBC’s Juliana Tatelbaum at the company’s annual conference.
“Of course, investors need to make sure they are compensated for the risk that things don’t work out as planned. I think there’s probably a sense that assets in this space are priced based on a best-case scenario. So I think that’s the revaluation that’s going on right now,” he said.
Increased capital investment for hyperscalers
The selloff comes as the pace of debt trading picks up, raising speculation that it is fueling fears among investors, many of whom remain bullish on AI as long as the company generates healthy earnings. Google owner alphabet and meta For example, we issued corporate bonds.
“As long as there’s a funding market, so as long as you’re increasing debt, it doesn’t matter,” Wilson added. “So investors are lining up,” he said.
But he said it would be a problem if this were no longer the case, but “we’re not in that situation yet.”
AI has fundamentally changed the strategies of many Big Tech companies, especially when it comes to US hyperscalers. US hyperscalers have transformed from once asset-light businesses to capital investment-heavy companies. Global investors are currently evaluating this new move. Bank of America’s latest global fund manager survey found that for the first time in 20 years, fund managers are concerned about hyperscalers’ “overinvestment.”
“(Hyperscalers) are trading at very high price-to-book multiples, which makes a lot of sense. You don’t value money presses based on the cost of the paper or the cost of the printing press. And that’s essentially what it was: these huge money presses where most of the assets were intangible proprietary technology, digital platforms,” Carlyle’s Thomas said.
“Now they’re really starting to invest heavily, with 70% of their cash flow going to capital expenditures, and if you look at their book value now, 70% actually consists of property, plant and equipment, primarily data centers. That’s four times more than 10 years ago,” he added.
