Global AI trade could revive after recent pullback, J.P. Morgan says

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Sept 28 : The recent pullback in the global AI trade has improved investor positioning, made valuations attractive and could spur a re-engagement, particularly in semiconductor stocks, J.P. Morgan analysts said on Monday.

Here are a few details:

• "Tech may not return to past levels of success...still, the fundamental case is constructive and there are plenty of opportunities within the AI complex," J.P. Morgan analysts led by Mislav Matejka said in a note

• The brokerage said investor positioning in AI has become cleaner, valuations have fallen significantly across most areas and capital spending is likely to remain strong, despite recent concerns about a slowdown. J.P. Morgan added that continued earnings strength and growing evidence of AI monetization should support renewed interest in the sector.

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• AI stocks rallied at the start of the year but have since weakened on concerns over capex spending and its immediate returns

• AI-linked stocks plunged earlier this month, after top AI executives warned about the risks of rapid development

• JPM sees better trading ahead on earnings strength and reduced macro volatility

• Retains bullish stance on semiconductor stocks, citing healthy fundamentals, pricing growth into 2027 and tight supply-demand conditions likely to persist until 2028.

• J.P. Morgan remains cautious on software, adding that AI growth continues to cloud the sector's long-term outlook as competition intensifies

• "We do not think Software is a good naked short, given the dramatic de-rating, but semis vs software pair trade should be re-entered"

• The MSCI World Semiconductors and Semiconductor Equipment Index, a performance gauge for global semi stocks, has risen about 48 per cent so far this year

• The MSCI World Software and Services index has gained only 1.3 per cent.

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