Technology

We recommend a new relative tech equity trade that will likely produce positive returns over the next six to 12 months, regardless of whether the AI hype continues or reverses.

Broad GenAI adoption and monetization, alongside falling inference costs, should make hyperscalers’ and enterprise investments worthwhile. While the GenAI boom echoes the dot-com era, it differs in key ways: Valuations are elevated but not extreme, and the rally is still underpinned by solid earnings growth. With few warning signs flashing red, the bull market likely has further to run, though a period of consolidation is overdue.

GenAI momentum is building. Many companies are already reaping benefits from the technology. GenAI is disrupting entire industries, such as education, image generation, and staffing. Investors should prefer our “disruptors” basket over the “disrupted” basket.

This week our three screeners identify: Broader and more accessible tech-driven equities, US equities exposed to cryptocurrencies, and doubling-down on top-decile stocks.  

Microsoft has gone up in a worryingly near-perfect straight line with dimension 1.098. Take August off before making a big commitment to stocks. Plus: a new tactical trade is to go long USD/HUF.

Despite macro headwinds, the OBBBA clearly favors Industrials, Financials, and Consumer Discretionary equity sectors. A carefully constructed, factor-aware basket in these sectors is well positioned to outperform in a fiscal-driven, uncertain environment. 

India's IT service exports have been booming and will continue to do so despite wider AI usage. Indian IT stocks, however, will not benefit from it as the expanding Global Capability Centers (GCCs) in India compete with the nation’s IT companies, driving the latter's profitability down.