Blip, dip or pullback? Global investors weigh in on equities sell off
Despite the ongoing sell-off in stocks, global investor sentiment towards AI remains buoyant.
European and Asian markets saw consecutive days of losses, tracking declines in their U.S. counterparts as pressures mounted on AI-related stocks and their valuations. Pan-European Stoxx 600 It hit a one-month low on Tuesday; Major stock markets opened lower on Wednesday, while Asia-Pacific markets fell.
In the US, stock futures were little changed overnight after major US indexes extended losses. AI-related stocks like Nvidia, Palantir and Microsoft are among those feeling the pressure.
“We think this is an AI-specific pullback. We don’t think this is the beginning of a bear market,” Emma Wall, head of investment analysis at Hargreaves Lansdown, told CNBC’s “Squawk Box Europe.”
While considering whether this is the “beginning of the end” or a moment marking the “big pullback”, Wall argued that although a “major global market correction” is overdue, the current downturn has not yet brought that change.
Many markets outside the U.S., particularly Europe and the U.K., are already reflecting much of the negative news, he said, adding that he sees the pressure as industry-specific.
But Wall said this is an opportunity to rebalance portfolios because “even considering this week, most people are doing really well, even in AI stocks.”
Mike Wilson, chief U.S. equity strategist and chief investment officer of Morgan Stanley, echoed that sentiment. He said markets have been in a correction for the last six weeks but “this is not the end of the AI cycle.”
All eyes are on Nvidia, considered a pioneer of artificial intelligence, as it reports third-quarter earnings after the closing bell on Wednesday.
“Whatever happens tonight, if there’s a hit, there’s a pullback, it’s probably a dip to be bought. But I think we’re in the middle of some sort of correction right now,” Wilson told CNBC, adding that he thought it was a mid-hit.
“The credit part of this spending is just starting, so we’re starting to raise new money in the credit markets. It’s not like the money won’t sit there and they won’t spend it, which means it’s probably time for these kinds of intermittent withdrawals to occur,” he added.
Companies and investors are in a delicate dance.
On the one hand, AI labs and their partners are making big promises and making aggressive moves, according to Jason Thomas, Carlyle’s head of global research and investment strategy. “But investors have no obligation to believe them,” he told CNBC’s Julianna Tatelbaum at the company’s annual conference.
“Investors, of course, have to make sure they’re compensated for the risk that things may not go as planned, and I think there’s a sense in the space that some assets are priced for best-case scenarios. So I think that’s the reassessment that’s going on right now,” he said.
Increasing capex of hyperscalers
The sell-off comes as the pace of debt deal-making accelerates, fueling speculation that investors may be uneasy; Most investors are bullish on AI as long as companies post solid earnings. Google owns Alphabet And Meta for example, they issued bonds.
“As long as the funding markets are there, so the debt is rising, that’s not a problem,” Wilson added. “I mean, there are investors lined up,” he said.
It only becomes a problem when that’s no longer the case, but “we haven’t seen that yet,” he said.
Artificial intelligence has fundamentally changed the strategy of many Big Tech companies; especially when it comes to hyperscalers in the US who have transformed from once asset-light businesses into capex-heavy companies. Global investors are now evaluating this new dynamic. Bank of America’s latest Global Fund Manager Survey finds that for the first time in two decades, fund managers We worry about hyperscalers “overinvesting.”“
“They were trading at very high price-to-book ratios, which made a lot of sense. You don’t value a money-printing machine by the cost of the paper or the cost of the printing press. And that’s essentially what they were, these huge money-printing machines where most of their assets were intangible, proprietary technology and digital platforms,” Carlyle’s Thomas said.
“They’ve started to invest so much now that 70% of their cash flow is consumed by capital expenditure, and if you look at book values, 70% is actually made up of property, plant and equipment, mostly data centres. That’s a fourfold increase from ten years ago.” he added.
