J.P. Morgan Sees Renewed Opportunity in AI Stocks, Favors Semiconductors After Pullback

The recent pullback in global artificial intelligence stocks has created an attractive entry point for investors, particularly within the semiconductor sector, according to a new analyst note from J.P. Morgan. The bank suggests that improved valuations and cleaner investor positioning could spur renewed interest in the theme.

An Attractive Entry Point

In a note published Monday, J.P. Morgan analysts led by Mislav Matejka argued that the fundamental case for AI remains constructive despite a recent downturn. "Tech may not return to past levels of success...still, the fundamental case is constructive and there are plenty of opportunities within the AI complex," the analysts stated.

AI stocks, which rallied sharply at the start of the year, have since weakened due to investor concerns over capital spending returns and warnings from top executives about the risks of rapid AI development. However, J.P. Morgan believes that strong corporate earnings and growing evidence of AI monetization should support a re-engagement with the sector.

Semiconductors Over Software

Ad

J.P. Morgan reiterated its bullish stance on semiconductor stocks, pointing to several key factors:

• Healthy fundamentals and strong capital spending.
• Favorable pricing growth expected to continue into 2027.
• Tight supply-demand conditions likely to persist until 2028.

Conversely, the bank remains cautious on the software sector, where it believes the long-term outlook is clouded by intensifying competition from AI. The note suggested that a "semis vs software pair trade should be re-entered," highlighting the diverging prospects of the two industries.

This strategic preference is reflected in market performance. The MSCI World Semiconductors and Semiconductor Equipment Index has surged approximately 48% so far this year, while the MSCI World Software and Services index has gained only 1.3% in the same period.