The artificial intelligence (AI) trade is flashing signs of broadening beyond mega-cap tech names, according to banking titan JPMorgan Chase.
In a new CNBC interview, JPMorgan Chase’s chief market strategist for the Americas, Gabriela Santos, says the market is shifting toward a wider set of opportunities tied to AI adoption.
She notes that while the largest technology companies continue to post strong numbers, the pace of earnings surprises has slowed. That deceleration, she argues, has opened the door for other areas of the market to gain traction.
“It’s just the magnitude of the earnings beats has been decelerating, and so you’re seeing a nice rotation within the AI theme to also include software infrastructure and, of course, to include physical infrastructure, including utilities, industrials.”
Santos says the trend reflects a healthier balance, with investors no longer concentrating exclusively on cloud and semiconductor giants. Instead, she points to software providers and physical infrastructure plays as beneficiaries of the next stage of the AI buildout.
Ed Yardeni, president of Yardeni Research, in the same interview, adds that the resilience of earnings has surprised many analysts. He suggests productivity gains may be stronger than expected, which could further support the expansion of AI-linked sectors.
He also notes that his firm is seeing signs of market rotation.
“The only answer I can come up with is the productivity numbers might actually be stronger than expected, and we could have upward revisions in that area…
But, all in all, I’m thinking that the market is clearly rotating, as Gabriela said, and I think we’re seeing also rotation into the mid-caps, small and mid-caps. And the earnings have been very disappointing there…
We’ve been recommending over-weighting information technology, communications, industrials and financials, and all of those have worked very well in the large-cap area.
We would start rotating into some of the mid-caps and small-caps in those four sectors.”
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