Strategists at Citigroup Inc. say the tendency of soaring share prices of companies operating in the artificial intelligence industry space may not be showing much signs of flagging at present, but the time has come for profit-taking in major markets.
The team of experts at the mentioned financial conglomerate, led by Drew Pettit, is of the opinion that currently the sentiment towards securities, which is located in the territory of the impact of processes occurring in the area of machine intelligence, and the dynamic of which is associated with the vector of development of the corresponding technological sphere, is the highest in the last five years. Strategists also pay attention to forecasts according to which free cash flow for most of the specified firms will exceed analysts’ preliminary expectations regarding this indicator.
It is worth noting that expectations like those mentioned very often signal a high probability of a significant increase in volatility levels in the short term. There are currently no clear or convincing signs of an overall price bubble in the financial dimension of the artificial intelligence industry. At the same time, Citigroup strategists say the growth of some companies operating in the machine intelligence space is causing concern.
In this case, the specificity of the observed state of affairs lies in the fact that the shares of firms that are on a trajectory of highly intensive growth are associated with an industry that demonstrates objective development and evolution. Also in the appropriate context, attention should be paid to the fact that artificial intelligence is gradually becoming the main technology of the current historical moment in the existence of human civilization and has virtually guaranteed significant potential, which has not yet been fully realized. Machine intelligence with a high degree of probability in the foreseeable future will have a sensitive impact on the economic space, the political environment, the system of social and public relations, and even the cultural plane. At the same time, these large-scale prospects do not eliminate the risk in the form of the possibility of excessive value of some companies involved in the process of development and development of artificial intelligence. A positive vision of scenarios of the future that are objective and to some extent guaranteed by the logic of the vector of movement of reality may contain excess enthusiasm and even certain elements of a fantastic perception of the world.
The global focus on artificial intelligence as a technology of enormous impact and as a tool for global transformation has already seen corresponding companies’ stocks hit record highs this year. For example, the market capitalization of Nvidia, a developer of graphics processing units necessary for training and subsequent operation of machine intelligence systems, has crossed a kind of historical milestone of $3 trillion.
Citigroup strategists recommend investors take profits in companies with highfliers of artificial intelligence. Investors should rebalance toward a broader array of AI stocks across the value chain, they said.
At the same time, there is also an opinion circulating among financial managers that the hype around artificial intelligence will continue in the second half of the current year.
Investors and market strategists surveyed by the media were split between bets that large machine intelligence players such as Nvidia will remain at the forefront and secondary benefactors that include utilities and infrastructure providers.
Citigroup experts recognize the fact that giving up ownership of artificial intelligence or betting against cutting-edge technology will be a difficult task for many on the buy side. According to their estimates, value expectations for stocks in the AI industry suggest high expectations, but long-term consensus estimates suggest that most are achievable. They noted that the sentiment is very optimistic and underlined that it still seems shy of a full-blown bubble.
It’s worth noting that Citigroup’s estimates for future growth in AI stocks are significantly lower than the current market price level. Also, the surge in the value of the specified securities is ahead of the historical tendencies of the rise. Moreover, in this context, it is worth noting that data on the options market indicates a potential imbalance towards the so-called bullish bets on artificial intelligence.
For those who are cautious about the AI market, Citigroup experts offer an alternative strategy called Hedge Basket. This basket is designed to benefit from potential declines in artificial intelligence stocks. The specified strategy offers an alternative to outright shorting. The basket gives priority to companies with negative correlations to high AI stock exposure, offering a hedge against potential losses.
Last week, investors and market strategists polled by the media at major companies such as BlackRock and BNP Paribas Asset Management said they expect anything related to artificial intelligence to feature among the prominent themes in the second half of the current year.
As we have reported earlier, Citi Uses Generative AI to Read New Capital Rules.
