The new political landscape following the midterm elections in the US has brought expectations regarding technology and artificial intelligence-focused stocks back to the forefront of global markets. In its latest assessment of the American stock market, JPMorgan Chase & Co. reported that the decline in tech stocks could create a recovery opportunity in the short term.
According to the bank's trading desk, it is too early to completely abandon the main trend in technology despite the recent wave of selling. In a note from the US Market Intelligence team led by Andrew Tyler, it was stated, "We do not abandon the tech trade and play for a tactical recovery."
JPMorgan anticipates that the upside potential may not be limited to just a few mega-cap technology companies. The bank suggests that investors should also consider cyclical stocks, which can perform stronger during periods of economic growth, alongside tech stocks. In this approach, it is assessed that a higher weighting should be given to cyclical stocks.
ARTIFICIAL INTELLIGENCE AND DATA CENTER RISKS
One of the topics investors have been following after the elections is the potential regulations by Democrats regarding the technology sector and artificial intelligence infrastructure investments. The proposal by Texas Governor-elect Gina Hinojosa to temporarily halt data center construction until new rules are established has increased concerns regarding regulatory risk in the sector.
While this topic is counted among the factors putting pressure on tech stocks, the 1.8 percent rise in the tech-heavy Nasdaq 100 index was notable. JPMorgan's trading desk, however, is of the opinion that concerns regarding the impact of potential policy changes centered in Texas on data center investments may be exaggerated.
Pointing out that there are other states in the US where data centers can be established, the bank stated that it is not expected that new regulations will completely halt artificial intelligence infrastructure investments. Therefore, according to JPMorgan, regulatory risk may not be a factor that determines the general outlook of the technology sector on its own.
On the other hand, JPMorgan emphasizes that some conditions need to be clarified for a more permanent rise in AI-themed stocks. Rebalancing of positions in the markets, confirmation of capital expenditure plans by major cloud service providers, strong financial results from semiconductor and memory manufacturers, and improvements in capital market activities are among the main signals the bank is monitoring.
While the assessment points to the possibility of a short-term recovery in tech stocks, it reveals that companies' spending plans and financial performance will be decisive for a stronger and more sustainable rise in artificial intelligence investments.
News Source: 12punto
