The week on the stock exchanges was marked by panic selling, which has already been dubbed the “AI Scare Trade”. Investors have stopped focusing on the future winners of the artificial intelligence race and are instead fearfully looking for sectors that will become the next victims of this technology. However, the largest Wall Street banks have some advice on how to navigate this chaos.
Initially, the victims were software companies, but the fear quickly spread to the financial sector and asset management companies, and eventually also infected the commercial real estate market. The sell-off in these segments is driven by fears that new productivity tools from startups like OpenAI and Anthropic will put entire industries out of work.
The “AI Scare Trade” phenomenon (translated as “AI fear game”) is characterized by the attitude of panicked investors acting according to the principle “shoot first, ask questions later.” Company shares are sold en masse without any deeper analysis of the reasons.
JPMorgan: Risks tilt towards rebound
One of the segments that has suffered most from concerns about artificial intelligence is software, especially the so-called SaaS model (Software as a Service). According to strategists from JPMorgan, shares from this sector, after historic declines, now have room to recover. In their opinion, current valuations take into account an unrealistic scenario of damage caused by AI.
“Given the market positioning, the overly skeptical approach to the impact of artificial intelligence on the software business, and the solid performance of these companies, we believe that the balance of risk has tilted in favor of a rebound,” write strategists at the largest US bank in a note to clients.
The resulting panic opens up an opportunity to make purchases in this sector, provided that companies are selected that are resistant to competition from AI and can benefit from it. Resistance is provided by, among others: high costs of switching service providers and long-term contracts with customers. JPMorgan lists Microsoft, CrowdStrike Holdings, ServiceNow, Palo Alto Networks, Datadog and Zscaler as such entities.
Morgan Stanley: These are attractive entry points
Morgan Stanley strategists echo competitors in saying that the decline in software stocks has opened up “attractive entry points.” They also positively evaluate manufacturers of microprocessors, technological equipment and the so-called Magnificent 7, which have also become cheaper recently.
“Periods like last week are not unusual during major investment cycles. In our view, momentum for companies implementing artificial intelligence remains high, while shares of companies using artificial intelligence remain undervalued,” Morgan Stanley experts say.
Among the companies for which, after the sell-off in the software sector, it is a good time to buy, the bank distinguishes Microsoft and Intuit.
Goldman Sachs: Short positions mushroomed
As stock markets sell off due to fear of AI, hedge funds are taking short positions in US stocks at a pace not seen in nearly a decade, Goldman Sachs brokers calculate.
Analyzing fund movements in the first week of February, bank specialists noticed that during this period, short positions taken by hedge funds exceeded long positions in a ratio of 2:1. The short game aims to make money on asset price declines.
The value of short positions in the US stock market exceeded the value of long positions for four weeks in a row. The most popular bets were on declines in companies from the IT industry. Only in the case of manufacturers of microprocessors and equipment for their production, purchase orders prevailed. Hedge funds were also more willing to buy shares from the health care sector.
Michael Burry: Palantir's good fortune won't last long
Palantir stock came under heavy selling pressure this week after “The Big Short” star Michael Burry shared his doubts about the AI investment cycle in his latest Substack post. Burry once again questioned the prospects of one of the industry's hottest stocks. He suggests that Palantir shares could fall to $46, which would represent a discount of more than 60% from current levels.
I think that Palantir's recent good streak will not last long, said the investor.
Burry mentioned that he was looking into the company, but did not provide further details.
David Einhorn: This is one of the best plays at this point
David Einhorn, founder of the Greenlight Capital fund, bets on a scenario in which the Federal Reserve (Fed) will reduce interest rates this year much more than the market currently estimates. Currently, investors expect two rate cuts.
I think one of the best plays right now is to bet on more interest rate cuts than expected. “I think we'll see a lot more than two cuts at the end of the year,” Einhorn said in an interview with CNBC.
The manager is convinced that Kevin Warsh, chosen by Donald Trump to succeed Jerome Powell as Fed head, will ultimately implement the will of the US president and lower rates.
Based on the assumption of faster rate cuts, Einhorn decides to hold gold in his portfolio. The price of the metal rose amid investor concern about the Fed's independence, uncertainty about Trump's actions and the weakening of the dollar.
“US trade policy is very unstable, which forces other countries to talk about settlements in something other than the US dollar,” Einhorn noted. – There are some issues with some major currencies that will materialize in the future.
BNP Paribas: Owning gold makes more sense than silver
By the end of the year, the price of gold may rise to USD 6,000 per ounce amid continuing economic and geopolitical risks, forecast strategists from BNP Paribas bank.
Experts refer to the ratio of the gold to silver price. Although this indicator has increased in recent days from about 45 to 65, it is still below the average of the last two years, which is about 80.
I believe there is room for these prices to spread further. “Owning gold makes more sense to me because silver doesn't provide the same level of risk protection,” David Wilson, commodities strategist at BNP Paribas, said in an interview on Bloomberg Television.
The bank's strategists base their forecast of further growth in gold prices on continued strong purchases by central banks and the growing inflow of funds into gold-based ETF funds.
