Analysts on Wall Street suggest that the artificial intelligence boom still has considerable potential, drawing comparisons to the market in early 1999. Despite recent volatility in chip stocks, key economic indicators like low credit spreads and strong corporate profits point towards continued growth rather than an imminent market peak.
While some market participants expressed concerns following profit-taking and commentary from AI companies, experts believe these movements are healthy corrections in a market with underlying strength.
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Despite recent turbulence in tech stocks, particularly within the semiconductor sector, many Wall Street analysts believe the broader tech boom, fueled by artificial intelligence, still has significant room to grow. They draw parallels to the market conditions of early 1999, suggesting that the preconditions for a market peak have not yet been met.
Andrew Garthwaite of UBS noted that factors such as low credit spreads, strong corporate profits, and a trajectory of descending interest rates indicate that the market is far from its zenith. "You can be in a bubble but still have a long way to go," echoed hedge fund manager Dan Niles, founder of Niles Investment Management. He pointed to 1998 and 1999 as periods where similar dynamics preceded a robust market year.
The recent sell-off in chip stocks, which began with Broadcom's moderate revenue projections and was potentially amplified by comments from AI startup Anthropic urging a slowdown in development, has raised concerns. However, some analysts view this pullback as a healthy correction after substantial gains. Citi analyst Atif Malik, for instance, maintained a positive outlook on the sector, keeping AVGO, TXN, and AMAT as top buy-rated picks.
The underlying economic conditions supporting this optimistic view include historically low credit spreads for both junk and investment-grade bonds, and strong revenue growth from hyperscalers, which fuels investment in new initiatives. Although rising energy prices have introduced inflation concerns and put potential interest rate hikes back on the table, futures markets are still pricing in a possibility of a quarter-point hike later this year.
The market sentiment remains cautiously optimistic, with analysts suggesting that the AI-driven tech rally has more runway than initially feared, despite the recent market jitters.
