Software stocks have been under heavy pressure as of late amid concerns of AI disruptions to the space. But yesterday, we're starting to see that spill over to some other parts of the market you'd least expect. It was quite a blowout in Wall Street: Every industry is one AI headline away from a brutal rout
And while we're seeing some stocks get annihilated, somehow the S&P 500 is still just 2.5% away from its record high. That speaks a lot about what's holding up major indices in the US at the moment. But even so, there are going to be nervous hands today with US futures sitting lower and the charts pointing to a test of the 100-day moving average for the index.
It's now a question of whether the individual stock-level blowouts are starting to trickle over. And all of this has stemmed from worries due to AI disruption.
Jefferies is weighing in on the matter, arguing that the market reaction may be overblown. However, they are also keeping cautious in not wanting to be buying the dip too early.
"We do not agree with the frenzy, but we also know not to stand in the way of position unwinds and flows."
Adding that:
"Companies which could show cost advantages from AI would be the winners while companies where the revenue stream is getting impacted would be losers. For now, we would recommend investors investing time and effort in identifying winners and losers, and keep powder dry."
Given the potential for the S&P 500 to break lower technically, it's a fair call in my books. However, the big caveat in all this is that it is going to take time for firms to sort out their own mess and for markets to try and weed out the bad apples.
It's not as easy as just looking at names and what these companies do and then going with that. If this week's rout has taught us anything, it is that especially.
We're now in a new phase in the AI trade and the start of the year has shown how quickly the narratives can shift. We've moved from focusing on profitability to power and data centers, to investors demanding firms to "show me the money", and then now this. It's all about who can integrate AI in the most efficient manner in terms of profitability and capital costs.
