According to the Citigroup Group strategist, the rise in AI stocks seems to have no signs of weakening, but looking back at history, it may be time to consider taking profits.
Since the beginning of this year, the optimistic sentiment around AI has pushed the US stock market to repeatedly hit new highs. NVIDIA (NVDA.US) once became the company with the highest market cap in the world, and Taiwan Semiconductor's (TSM.US) market cap exceeded 1 trillion US dollars on Monday.
The team led by strategist Drew Pettit stated that investors' sentiment towards AI-affected stocks is the strongest since 2019, and expects that most of these companies' free cash flow will exceed analyst expectations. The strategist added that such data typically indicates that "significant volatility" is imminent. They said that although there may be no signs of an overall price bubble, the rise in some stocks is "worrisome".
The strategist stated: "We continue to recommend that investors take profits in the field of AI, especially in the stocks of chip manufacturers." They said that investors should "rebalance to a wider range of AI stocks across the entire value chain."
However, some fund managers believe that the AI boom will not fade in the second half of this year. There are different opinions among more than a dozen investors and market strategists interviewed by the media on whether large stocks such as NVIDIA, public utilities, and infrastructure providers will lead the market.
The Citigroup strategist acknowledged that it would be "difficult" for many buyers to not hold or short AI stocks. They said: "Our estimate shows that the current stock price implies excessive expectations. But the consensus estimate for the long-term shows that most expectations are achievable." "Basically, market sentiment is very optimistic, but it seems that a comprehensive bubble has not yet formed."