Analysts at JPMorgan believe it is too soon to rotate out of artificial intelligence stocks, despite the recent concerns.
Shares of tech companies dipped recently due to concerns around the potential air pocket in the AI infrastructure build out. As a result, there was a steep sell off for AI levered companies in JPMorgan's coverage.
"While the debate around how long the AI infrastructure build-out will continue before a pause is always on top of investor minds, Nvidia (NASDAQ:NVDA)'s upcoming product transition has become the latest flashpoint in the concern around an air pocket in the near-term even as investors seem more broadly convinced about the long-term drivers of the AI spend over a multiyear period," explained analysts. "Within these concerns, investors are also increasingly looking at some of the non-AI and macro levered companies to rotate out of the AI group."
However, JPMorgan feels that the optimism about rotating into non-AI on account of a recovery is too early to be justified based on the current data and early 1Q earnings reports.
The bank stated: "In relation to the challenged verticals in the form of Telecom and Enterprise, we are yet to see material changes in the spending intent to raise hopes of a recovery, while Consumer spending appears to be at a trough and plateauing, but hardly showing any signs of rebound."