However, the AI boom cuts both ways. While it’s a boost for earnings, the uncertainty it creates has compressed valuations across much of the market. That’s the case not just for industries facing disruption, but even for the mega-cap technology firms at the center of the buildout, Snider notes. Until these large companies can demonstrate accelerating revenues alongside slowing capital spending, the clearest investment opportunity remains in the companies supplying the AI infrastructure itself, he writes.
What are the biggest risks to US stocks?
Despite the bullish headline numbers, there are also reasons to be cautious, Snider writes. Market breadth—the share of stocks participating in the rally—has dropped to one of its narrowest levels since the dotcom era, according to Goldman Sachs Research. The war in Iran and the AI build out are the “clearest equity market risks in coming weeks,” Snider writes.
In the meantime, corporate confidence appears solid. “Recent surveys have been mixed but show little panic, and corporate actions are even more encouraging than their words,” Snider writes.
Year-to-date share buyback authorizations have hit a record $422 billion, and announced strategic merger-and-acquisition volumes have more than doubled compared to a year ago.
Which US stocks are the best opportunity for investors?
Snider suggests that investors should focus on companies that benefit from longer-term structural trends (secular growth companies) and from unique earnings advantages (particularly those tied to power infrastructure investment).
He points out that growth stocks, or companies that are expected to increase their earnings quickly over time, used to be more expensive compared to slower-growing value stocks. But recently, that valuation difference has shrunk. That means growth stocks aren’t as overpriced relative to value stocks as they were before.
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