“DeepSeek, China’s new entrant in the field of artificial intelligence, has shaken the highly-valued US tech sector. Investors should continue to diversify* their equity exposures in search of more attractive opportunities at a global level.”
- The week served as a wake-up call for investors’ high expectations regarding certain AI stocks.
- The economic backdrop remains supportive for equities, but investors may pay more attention to valuations.
- We expect the rotation towards less expensive areas of the market to continue.
Recent developments in artificial intelligence (AI) highlight how quickly the tech sector evolves, impacting companies that have built competitive advantages, and sparking investor enthusiasm in recent months. For these companies, the arrival of seemingly more efficient open-source AI models increases uncertainty regarding future earnings and investment plans. In our view, markets will increase scrutiny of their ability to meet high profit expectations. Considering their high valuations and weight in US equity indices, we can expect some volatility to persist in the market. This could favour a broadening of the equity rally and a healthy rotation towards sectors with higher earnings visibility, such as financials, healthcare, and consumer staples. In the tech sector, the environment becomes more favourable for stock selection, from early winners in hardware and data centres to companies involved in software and devices.
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