It is not the AI bubble that is about to burst, but escaping the crowd! Wall Street's strategy is shifting from "AI computing power beta" to "cash flow alpha"

With the recent frequent occurrence of "AI computing power barometer" in the Korean stock market, the US stock market's Philadelphia Semiconductor Index has plummeted by nearly 19% from its June high, approaching a technical bear market. Additionally, global AI computing theme stocks and the semiconductor sector have been heavily sold off due to overcrowded and highly leveraged long positions. Top Wall Street strategists from Citigroup, Morgan Stanley, and other institutions have shifted their strategies from "AI computing power infrastructure beta" to high-quality, low momentum, ample cash flow, and strong fundamental cyclical sectors and defensive stocks that have not seen as much growth as tech stocks this year. According to Beata Mantai, the European stock strategy head at Citigroup, the prospects for a bull market in global stocks in the next six months remain optimistic, but as the uptrend in global stock markets expands beyond AI-related tech sectors, drastic rotation of stock positions is essential. This view is echoed by Jefferies and Morgan Stanley, suggesting that as momentum trading in AI semiconductors and other AI computing power sectors cools down, funds will move from high leverage computing beta to low pressure quality stocks. The market leadership is expected to shift from semiconductors to quality fundamental assets in sectors such as consumer, cyclical, healthcare, and large financial companies. Jefferies stated that the market volatility around AI computing related tech stocks is expected to continue, and it may be time for investors to rebalance portfolios that are overly weighted towards overvalued AI-related tech stocks. The focus is shifting towards quality stocks with strong cash flows to weather the storm of a possible tech stock pullback. With global stock markets entering a high volatility period, Citigroup recommends that investors shift their focus from AI to the financial sector. Mantai noted that the weakness in global tech stocks reflects a shift of funds between sectors, rather than a market-wide collapse. Despite negative news surrounding AI investment euphoria, global stock markets have risen by 10% in the first half of this year, hitting historical highs. The strategy of transitioning from AI computing power beta themes to "buy cash flow defense and market breadth" is recommended by Jefferies, as cyclicals and defensive sectors are expected to lead the summer market. This strategy focuses on high-quality, low-profit taking, low crowded, high cash flow type stocks to navigate through the potential tech stock pullback, amidst concerns of overleveraged AI semiconductor trades and fears of disrupted AI revenue pathways. The rotation from high leverage, high momentum AI computing trades towards broader market breadth, particularly in finance, healthcare, and less-volatile and high-quality assets, is advocated by Morgan Stanley and Jefferies. These institutions recommend a shift towards sectors with lower valuations and stable cash flows to reduce exposure to the highly crowded AI computing chain. The strategy emphasizes a focus on "high-quality, low-pressure, low-momentum, cash flow defensive" investment strategy, focusing on assets that offer high-profit quality, good free cash flow yield, reasonable valuation, and have not been excessively chased by momentum funds. The sector rotation framework proposed by Wilson points toward market leadership transitioning from direct beneficiaries of AI capital expenditure, such as semiconductors, to super-sized cloud companies, consumer discretionary goods, transportation, regional banks, and biotech. The Morgan Stanley team led by Wilson emphasizes that the breadth of investment in the US stock market should continue to improve, highlighting a preference for consumer discretionary goods, transportation, regional banks, and including biotech in the rotation trend. Wilson's team's core strategy is not that the "AI super bull market has ended," but that the valuations and positions of AI capital expenditure beneficiaries have become overheated, and the market needs to shift from momentum trading dominated by AI semiconductor themes to profit repair, stable cash flows, and more reasonably valued cyclical and defensive sectors.