TechGPT: Addressing AI and tech laggards

We do not think the AI trend is a bubble. First, AI, or generative AI, has clear use-cases for consumers and enterprises alike, distinguishing it from previously hyped tech trends like 3D printing that failed to take off in a big way. Popular consumer generative AI tools, like ChatGPT and Midjourney, have already sparked an enterprise rush to build or incorporate AI functions across a wide range of businesses and services. Moreover, we see artificial intelligence as a “horizontal” technology that will have important use-cases across a number of applications and industries, like knowledge services (including the technology, media, and telecom (TMT) sector) and financial services.

While we do not think the AI trend is a bubble, we see the risk of a 10–15% reset lower for AI-related stocks in the near term. A potential correction in the mid-teens for AI-related stocks may provide investors with an opportunity to revisit AI technologies given the structurally increasing long-term adoption of the technology in both consumer and enterprise applications, and the double-digit growth rates we see each year.

We recently turned defensive in our tech positioning but see two near-term opportunities. First, in line with our tech playbook, we are transitioning from early to mid-cycle tech companies like software and internet companies. The second opportunity we see is in tech laggards, where we believe the market has underappreciated near-term growth potential.

Historically, the 2Q reporting season has been positive for tech. In fact, the Nasdaq has reported positive gains in each of the past 15 years during the month of July. With tech results' season set to start soon, we expect a gradual pickup in growth rates after a challenging 12 months of earnings contraction.