JPMorgan Strategist Warns AI Stocks May Be Due for a Reversal

JPMorgan strategist Michael Cembalest is warning investors to be cautious about U.S. equity market technicals, particularly in the artificial intelligence (AI) trade.

In his recent report, 'Eye on the Market', Cembalest notes that semiconductor stocks have recently outperformed AI hyperscaler stocks, similar to what happened during the dot-com bubble of 1999-2000.

The iShares Semiconductor ETF has delivered a return of 89.75% in the past year, far surpassing AI hyperscalers like Alphabet, Amazon, Meta, Microsoft, and Oracle.

Cembalest believes that when companies closest to final demand roll over, even as capital spending beneficiaries keep thriving, it's a sign of a boom cycle turning into a bust. He advises investors to diversify away from the AI trade by looking at international stock ETFs.