- Sharp swings in AI stocks reflect rotation between names, not a bubble, says top EM strategist
- Cloud computing strength at Microsoft Azure and Amazon AWS drives hyperscaler results
- Subscription demand for Anthropics Claude supports durable AI trade demand
Emerging markets equity strategist Adrian Mowat said the sharp swings in AI-linked stocks reflect rotation between names rather than a bubble, even as capital expenditure by hyperscalers draws scrutiny.
"There's extreme rotation between stocks. Share prices have generally gone up less than the earnings revisions," Mowat said, adding that valuations have largely kept pace with upgrades to earnings estimates.
Mowat pointed to strength in cloud computing as the common thread across recent hyperscaler results. "It seems to be that the cloud computing business is very strong at Microsoft Azure and at AWS at Amazon," he said.
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He added that subscription demand for Anthropic's Claude also pointed to durable demand underpinning the AI trade. "I actually think markets are very sensible in terms of what they're reacting to, and that there isn't really a bubble here," Mowat said.
Kospi Retail Frenzy A Cautionary Tale
Mowat flagged South Korea's Kospi as a warning sign of how leveraged retail flows can amplify volatility. "There are highly leveraged retail products that are being sold again by Samsung and SK Hynix, as well as the broad Kospi indices. You have these double-leveraged ETFs," he said, describing a situation where "the derivative tail" is "wagging the dog."
He said the broader picture in global equities points to unusual concentration, with the top 10 companies in developed market indices now accounting for 26% of the benchmark, up from around 10% a couple of years ago.
"We definitely have an environment of narrow, concentrated markets with a few stocks generating the performance," Mowat said. "These markets are very hard, whether you're a professional or an individual investor at this point in time."
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