Scott Chronert, head of US equity strategy at Citi, says the market is underestimating how large and how long the AI infrastructure buildout will run, naming one specific sector as the firm’s highest-conviction play.
In a new CNBC interview, Chronert says that despite a strong run in equity prices, the earnings growth in semis has been so powerful that valuations have actually become more attractive, not less.
“The picks-and-shovels play on the AI buildout, in our view, continues to be probably the highest conviction component of this, with the hardware area of tech also being additive to that playbook.”
Chronert says that even as the sector has posted strong price performance, earnings growth has been so much stronger that multiples have actually compressed, making the sector cheaper today than it was six months ago.
“The semi multiples literally, when we’re going into Q2, they had their forward P/Es corrected 10 multiple turns from six months prior, going back to last fall. So I think the point here being is that what we don’t think the market has priced in fully yet is the magnitude and duration that the AI buildout probably still has ahead. And so that does tie back to the hyperscalers and how aggressive they’ll be with their CapEx projections.”
But for now, Chronert says that semiconductors are likely to consolidate.
“It’s had a pretty good run. Yes, it’s probably due for a pause or some digestion of these gains, but probably the highest level of conviction in terms of the fundamental outlook from our perch.”
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