Tech Turns into a Stock Picker's Market as AI Trade Evolves
The tech industry is experiencing a shift towards being a stock picker's market, according to Goldman Sachs' US technology, media, and telecommunications sector specialist Pete Callahan. In an interview with Chris Hussey on The Markets, Callahan stated that the AI trade is becoming more nuanced and broadened out from its initial focus on semiconductors to include infrastructure software, security software, and tools for adopting and deploying AI.
Callahan noted that the trend in tech remains higher due to earnings growth, valuations, and thematic tailwinds. However, investors are concerned about the linearity of the deployment of AI, with some worrying about the potential for a slowdown in adoption. This is partly due to increased uncertainty around rates and oil markets, which have become more volatile.
Regarding software, Callahan described it as a nuanced market where dispersion has increased, making it a stock picker's game. He noted that while cybersecurity and data infrastructure stocks have performed well, the core SaaS and application layer of software is still struggling to find its footing. Investors are now paying more attention to companies that can help implement AI or keep it safe.
Callahan also touched on the relationship between tech and rates, stating that the recent compression in NASDAQ multiples has been driven partly by rising interest rates. However, he emphasized that the theme of AI remains intact, with earnings growth still driving returns in the sector.