Barclays Analysts Maintain Positive Outlook on AI Investments

Despite recent market volatility, Barclays analysts assert that the AI investment theme remains robust.

In a note released on Friday, the bank noted that equities are facing various challenges, including the Jackson Hole meeting, Nvidia’s earnings, and upcoming payroll data. However, the broader AI narrative continues to be a significant driving force in the market.

Barclays pointed out that Nvidia (NASDAQ: NVDA), a major player in the AI space, has been under high expectations after a strong rally since early August. The analysts remarked, “For Nvidia shares, having rallied significantly since the early August sell-off, the Q2 results were always going to be a high bar to clear.” This expectation is shaped by the market’s consistent anticipation of Nvidia’s ability to deliver “beat and raise” results, a trend that has been dominant since Q1 2023.

Nonetheless, Barclays indicated that the intense growth and enthusiasm around Nvidia might start to temper, potentially leading to a normalization of market pricing and valuation. Interestingly, the bank views this potential normalization as a positive development for the wider market. They stated, “We actually think this could be healthy for the overall market, and for an eventual broadening out of market returns.”

The firm highlighted that the dynamics of the equity market have been heavily dependent on the tech sector, particularly Nvidia, over the past 18 months. As institutional positioning remains heavily weighted towards tech, Barclays sees this as a risk, though they maintain that the overall AI growth trajectory is still appealing.

Furthermore, Barclays emphasized the necessity of observing additional factors such as the German elections and the French Prime Minister’s announcement while reaffirming their positive outlook on the AI sector. They concluded, “We still find the AI space and its growth trajectory attractive while valuations have improved,” recommending an increase in EU Tech positions during market dips.