Investors rushed out of the AI trade this past week and piled into materials, industrials, financials and healthcare, representing a sector rotation that could have staying power, according to Wall Street analysts.
“But as I said, this one has more legs in the sense that there are more things that are happening that throw doubt on how fast or how profitable all the AI buildout is going to be,” he added.
In Oracle’s case, recent delays in data center construction may actually end up being a silver lining if it slows expenditures, but there are still more questions than answers about the profitability of AI, Siegel said.
He noted his research has shown that when companies grow spending faster than their income, they ultimately overexpand, hitting profits and stock returns.
“I’m not saying that that’s necessarily going to happen to AI or certainly all the AI, but that narrative has to come in mind,” Siegel warned.
But since then, concerns about valuations, margin sustainability, and high debt shifted sentiment around the technology sector.
Financial and healthcare stocks have been more appealing, while small caps and even “micro-cap stocks” will benefit from falling short-term rates, he added.
“More importantly, we foresee this rotation in the early stages with relative valuations remaining attractive,” Teal predicted.
