A lot of noise but AI theme remains intact: Barclays

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

The bank said in a note Friday that while equities have been navigating various challenges—such as the Jackson Hole meeting, Nvidia’s earnings, and upcoming payroll data—the broader AI narrative continues to be a driving force in the market.

Barclays highlighted that Nvidia (NASDAQ:NVDA), a key player in the AI space, faced high expectations following a strong rally since early August.

“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,” the analysts noted.

This sentiment stems from the market’s anticipation of consistent “beat and raise” results from Nvidia, which has been a norm since Q1 2023.

However, Barclays suggested that the intense growth and excitement surrounding Nvidia may begin to temper, potentially leading to a normalization in market pricing and valuation.

Interestingly, Barclays sees this potential normalization as a positive development for the broader market.

“We actually think this could be healthy for the overall market, and for an eventual broadening out of market returns,” the bank stated.

The firm pointed out that equity market dynamics have been heavily reliant on the tech sector, particularly Nvidia, over the past 18 months.

As real money positioning remains heavily skewed towards tech, Barclays believes this poses a risk, but the overall AI growth trajectory is still seen as attractive.

Barclays also emphasized the importance of monitoring other factors, such as the German elections and the French Prime Minister announcement, but reaffirmed their positive outlook on the AI sector.

“We still find the AI space and its growth trajectory attractive while valuations have improved,” they concluded, recommending adding to EU Tech positions during market dips.