Mike Wilson, Chief US Equity Strategist at Morgan Stanley, has noted a decline in enthusiasm for artificial intelligence (AI) investments, suggesting that the allure of the AI sector has diminished. In a Tuesday interview with Bloomberg Surveillance, Wilson highlighted a shift in investor behavior towards defensive stocks as they await new investment themes.
Wilson observed that the initial excitement surrounding AI, particularly in the semiconductor sector, has waned. This shift is evident in the performance of major semiconductor stocks, which have collectively dropped nearly 7% since Nvidia’s earnings report failed to meet high expectations. Nvidia, a leading name in the sector, has seen its share price decline by approximately 13% during this period.
“We’ve seen a lot of stocks in this sector pull back,” Wilson remarked. “It’s clear that the AI theme may have been overhyped. While we believe in the long-term potential of AI, it’s not going to transform productivity in the short term.”
As the AI rally fades, investors are turning their focus to defensive sectors such as utilities, consumer staples, and healthcare. According to Wilson, this shift reflects a broader market trend where, in the absence of new growth themes, investors seek refuge in high-quality, defensive stocks.
Wilson explained that with the AI-driven growth narrative losing momentum, the market is searching for a new theme. Until one emerges, investors are opting for defensive assets, which are perceived to offer stability amidst economic uncertainty. “With the AI theme now faded, the market is retreating into defensive, high-quality stocks,” he said.
In a note released Monday, Wilson recommended quality defensive stocks as favorable investments in a slowing labor market, aligning with a late-cycle economic backdrop. His team has recently added three new defensive stocks to its “Fresh Money Buy List,” which now includes a total of nine stocks.
Wilson emphasized that while the current downturn in AI enthusiasm might be disheartening, it is part of a larger market cycle. The focus on defensive stocks reflects a strategic adjustment as investors wait for the next major investment theme to materialize.
