Key points
- Barclays warns that the strongest rally in AI-related stocks may already be over.
- The semiconductor ETF fell approximately 11% during the October sell-off.
- Strategists favor companies with strong profitability and more sustainable valuations.
According to Investing.com, Barclays stated in a strategy report on October 16 that as the AI investment cycle matures, investors should become more selective. Emmanuel Cau, European equity strategist, said investors should no longer assume that all companies affected by AI will benefit equally from the technology's expansion.
Barclays said the market is entering a more demanding phase, where financing needs, competitive threats, regulation, and revenue visibility will all be subject to closer scrutiny.
Cau stated that the strongest rally driven by the AI investment theme may already be behind us, but Barclays has not abandoned its long-term positive outlook on large technology companies.
In contrast, the bank favors companies that are already profitable, have solid balance sheets, and whose valuations are supported by achievable profit expectations.
This shift occurred after semiconductor stocks came under pressure. A previous round of chip selling erased approximately $1.64 trillion in market value over six trading days, affecting companies including Nvidia, AMD, and Micron.
The broader Nasdaq Composite fell 4.5% for the week ended October 16, while the S&P 500 declined 1.9%, indicating that tech stocks faced heavier selling pressure than the broader market.
Why rising AI debt and interest rates concern investors
Higher inflation and geopolitical tensions have made the outlook for U.S. interest rates more complex and increased the cost of financing long-term infrastructure projects.
AI companies are particularly vulnerable because building data centers requires significant upfront investment in GPUs, power systems, networking equipment, and construction.
CoreWeave is a prime example: its stock price dropped more than 22% in a week as investors questioned whether future customer revenue would be sufficient to support its massive funding commitments.
Meanwhile, Barclays recently downgraded Dell, Hewlett Packard Enterprise, and NetApp, questioning whether some AI hardware growth figures reflect rising component prices rather than stronger underlying demand.
Which AI stocks are likely to be more stable?
Barclays' position does not mean it predicts a collapse in artificial intelligence investments.
The strategist still favors established tech companies but believes investors should distinguish between those that can consistently generate profits and those that rely on distant profit expectations.
Recent global technology funds experienced $4.75 billion in outflows, indicating that some investors are already reducing concentrated positions.
Cau also noted that falling government bond yields could provide some offset to weak stock markets, as bonds may once again serve as defensive assets.
He also noted that Europe is a diversified allocation option, as European stock markets have lower exposure to the largest U.S. AI companies.
Maya Bennett
Maya Bennett is a financial journalist covering cryptocurrency, stocks, and broader market trends. Her focus includes Bitcoin, major digital assets, stock markets, monetary policy, and economic developments that shape investor sentiment. She excels at transforming fast-moving market news into clear, concise reporting.