This week’s fluctuations in the equity market, particularly among U.S. artificial intelligence-related stocks, have raised concerns about a potential contagion effect for global investors. As AI stocks experienced some pullback amidst worries over inflated valuations, Goldman Sachs’ CEO David Solomon predicted a possible drawdown of 10-20% in equity markets over the next two years. The warnings have been echoed by the International Monetary Fund and the Bank of England, with Governor Andrew Bailey expressing concerns about the emergence of an AI bubble. In a recent interview with CNBC, Bailey noted that while technology companies contribute significantly to productivity, uncertainties surrounding their future earnings could offset these benefits. “We have to be very alert to these risks,” Bailey stated, highlighting the delicate balance investors must navigate in the current landscape.
Despite these apprehensions, certain companies continue to thrive thanks to the ongoing AI boom. Legrand, a French company that supplies products to major players like Alphabet and Amazon for cooling servers, has seen its shares rise by 37% this year, reflecting the strong demand associated with AI advancements.
In contrast, some business leaders remain optimistic about the infrastructure supporting AI development. Anders Danielsson, CEO of Swedish construction firm Skanska, dismissed fears of a slowdown in the data center sector. “In the U.S., we have a very strong pipeline of data centers—we don’t see any slowdown there,” he remarked, adding that their international clients are keen on expanding data center investments in central Europe, the Nordics, and the U.K.
Kiran Ganesh, a multi-asset strategist at UBS, also pointed out the surprisingly low volatility during this period. He explained that, despite the backdrop of investor concern regarding potential valuation issues and uncertainties in profit forecasts, the overall market narrative remains positive. “We’ve had a remarkably smooth rally given the scale of investment that’s taken place,” he remarked. As earnings season unfolds, many companies are exceeding expectations, contributing to an upward trend in the markets, which Ganesh views as a reassuring sign.
As the equity market navigates these turbulent waters, the prevailing sentiment among some analysts points toward a cautious but optimistic outlook, reflecting the resilience of certain sectors amidst evolving investor concerns.