Jefferies’ report mentions ‘AI fatigue’, due to which investors are eyeing cheaper markets like India and China. Quarterly earnings from US tech companies will be the next big test for the AI investment cycle, revealing the earning potential of AI.
The upcoming quarterly results of major US technology companies will be the next big test for the artificial intelligence (AI) investment cycle. According to a report by Jefferies, investors are also debating whether the market is showing “AI fatigue” and whether they are turning to cheaper markets like India and China.
“The new quarter has started with talk of ‘AI fatigue’ as investors look for the end of this boom and a rotation into cheaper ‘value’ stocks that have not been part of the AI trade,” the report, titled “AI Fatigue and Rotation”, said. It also said that Tencent in Asia is an example of this trend.
Jefferies said the recent decline in AI-related stocks does not signal the end of the AI investment cycle. Referring to the companies supplying AI infrastructure, the report said, “Such improvements are both natural and healthy. But as long as the race to spend heavily on AI continues, the ‘picks and shovels’ trade, i.e. companies providing infrastructure, will continue to benefit from it.”
Will keep an eye on the results of these 4 big companies
The report said investors are now focusing on the quarterly results of the four major US hyperscalers – Alphabet, Amazon, Meta and Microsoft – to gauge whether AI spending is on the right track and whether these investments are starting to yield returns. “That’s why hyperscalers’ next quarterly earnings announcements, starting on July 22, will prove to be the next stress test for the AI story in general,” the report said.
Increased concern about earning from AI
According to Jefferies, the main concern has now shifted from the scale of AI investments to whether hyperscalers will be able to monetize them. The report said uncertainty over returns is weighing on investor sentiment, with the market also debating whether the recent decline in memory chip stocks is a sign of a larger rotation or potential cutbacks in AI capital spending by hyperscalers.
Markets like India-China may benefit
The report also notes that large US technology companies have underperformed the broader market in recent months, while concerns are growing about earnings from AI. Jefferies said the shift away from expensive AI-linked stocks could benefit markets outside the AI trade, including China and India, as investors look for value opportunities. (ANI)
(Except for the headline, this story has not been edited by Asianet Newsable English staff and is published from a syndicated feed.)