UBS conversations: Blackstone CEO on the evolution of private market investing (9:23)
CIO Mark Haefele and Blackstone CEO Steve Schwarzman dig into the business cycle, investment strategies, and key opportunities right now.

Thought of the day

US equities slid for a third consecutive day on Monday as a sharp drop in the share price of NVIDIA weighed on market sentiment. The chipmaker has fallen nearly 13% in the three sessions since its brief tenure as the world’s most valuable listed company last week, trimming its year-to-date rally to just below 140%. Other chip names have also declined, with the Philadelphia Semiconductor Index now down 6.8% over the same period.

Renewed volatility is not surprising, in our view, with surging artificial intelligence (AI) revenues and capex a key driver behind the recent all-time highs in US equities. But we think NVIDIA’s correction shouldn’t be mistaken as a warning signal on either the structural investment case for AI or the broader equity outlook:

AI adoption continues with positive monetization trends. Selling pressure on NVIDIA follows milestones for its stock price and a share split, rather than any public change in its revenue or profit guidance. We believe other demand signals look positive, with Apple working to integrate AI in its consumer devices and to partner with model operators like OpenAI. Meanwhile, media reports suggest OpenAI could be generating annualized revenues of USD 3.4bn, up from its previous disclosure of USD 2bn. This follows stronger-than-expected monetization trends during first-quarter earnings, where cloud platforms reported accelerating revenue growth. We expect AI monetization to be the key focus during the next reporting season starting in July.

The robust foundation of AI sets the technology up for sustainable growth. Many of the companies investing most heavily in AI today are financially strong, with high-quality earnings, strong profitability, and healthy cash flows. In fact, markets are increasingly rewarding companies with expanding margins, and we believe some of the largest AI beneficiaries should continue to be able to defend their margins with strong pricing power and solid innovation. This financial stability should reduce the risk of speculative bubbles in the industry.

AI is not the only driver for equity performance this year. While the tech-heavy Nasdaq has fallen 2% in the past three trading days, the loss in the S&P 500 is narrower at 0.7%, reflecting a constructive backdrop for the broader market—including solid earnings and economic growth, and a likely pivot in the Federal Reserve’s monetary policy later this year. Intra-equity rotation was particularly evident on Monday, with the tech sell-off coming alongside solid gains for the energy (+2.7%), utilities (+1.2%), and financials (+1%) sectors. Treasury yields and Fed expectations were little changed. We forecast 11% earnings growth for the S&P 500 this year amid a broadening rally, driven by companies with exposure to structural growth trends.

So, without taking any single-name views, we maintain our positive view on the AI story, but believe rightsizing tech exposure is key to navigate volatility while maintaining strategic exposure to the technology that we think is set to drive growth in the coming years. Investors can utilize structured investments with capital preservation features for more defensive positioning, or consider exposure in laggard markets such as South Korea. Beyond tech, we see quality growth opportunities in global quality wealth compounders, Europe’s Magnificent 7, select benchmark heavyweights in Asia, and firms exposed to the energy transition, the ocean economy, and water scarcity.