Barclays says AI trade is maturing, favors greater diversification

Investing.com -- Barclays told clients in a note on Friday that it believes the artificial intelligence trade is entering a more mature phase, calling for greater diversification even as it welcomed clarity from the Federal Reserve.

Strategist Emmanuel Cau said the Fed's 25-basis-point hike was arguably the least bad outcome for markets, reinforcing its credibility and commitment to lowering inflation.

He feels the meeting should "ultimately be seen as a clearing event and a positive development," noting the dollar has stabilized, long-end yields eased and equities rose after the decision.

Still, Cau notes that the global monetary backdrop continues to tighten, implying lower valuations and potentially lower equity returns. He added that it was hard to see rates and equities fully stabilizing until energy-related inflation pressures ease.

On AI, Cau said the theme has evolved from a one-way trade into a more volatile one, with growing dispersion between winners and losers as investors question the sustainability of hyperscaler capital spending.

Recent calls from Anthropic and other developers for a slower pace of AI development have added to those doubts.

While Barclays still views AI as a tailwind for growth and earnings, Cau said "the trade is clearly entering a more mature phase with both volatility and execution risks rising."

That argues for greater diversification and a broadening of market leadership into less AI-exposed areas, particularly outside U.S. technology, he said, noting the valuation gap between the U.S. and the rest of the world has begun to narrow.

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