HSBC sees no sign of 'exuberance' in AI stock valuations
Some investors are doubting the strength of the artificial intelligence play against evidence to the contrary, say HSBC strategists.
Barring a dramatic nosedive, the S&P 500 and Nasdaq Composite are set to finish the April-to-June period with their best quarterly gains in six years.
Those returns come despite persistent investor concerns about whether the artificial intelligence trade will deliver, which is at the crux of our call of the day from strategists at HSBC led by Duncan Toms and Max Kettner. Their view: those AI skeptics could get blindsided this year.
"The AI trade continues to face scrutiny and comparisons to the tech bubble of the late 1990s/early 2000s," said the HSBC team.
"So what if, instead, the AI trade just continues and valuations actually begin rising strongly again? Forward P/E ratios currently suggest no sign of exuberance," they said.
Their chart shows Nvidia (NVDA), for example, trading at just below 20 times earnings, which marks a 10-year low for its 12-month forward price-to-earnings ratio. Meanwhile, Monster Beverage $(MNST)$ sits at a 10-year high with a forward P/E of just under 40 times.
A re-rating toward the middle of their recent range would be enough to see the AI trade continue strongly.
They acknowledge that an alternative pushback is that future earnings expectations have gotten too positive, and a "reality check" is due.
"Yet the main problem with that is that many of these stocks have seen realized earnings growth over the past year outstrip stock price performance. So, all of Meta, Amazon, Microsoft, Nvidia, Broadcom, and Micron have seen trailing P/E ratios fall too in the last 12 months. The same can't be said of many other parts of the market," they said.
HSBC believes Micron Technology's $(MU)$ recent earnings are "hard evidence for an AI backdrop that is alive and healthy," even if the tech sector didn't see a bounce as expected.
Another trade that could go against consensus would be an "explosive" dollar DXY rally. After the June Federal Reserve meeting, HSBC has updated forecasts for the greenback to gradually rise into the first half of 2027.
"The explicit focus on a lack of forward guidance and pursuit of price stability is favoring the currency from a rates differential perspective, as rate hike pricing elsewhere recedes due to the softer outlook for oil prices but remains steady for the USD," they said.
Currency markets are likely to refocus on fundamentals and away from geopolitics, and that could mean a much stronger dollar, they say.
The dollar could accelerate if the Fed signals acting more aggressively than markets expect, and that could be amplified by a re-escalation of geopolitical tensions. While the dollar/oil connection has been weakening lately, the strategists said the greenback could climb alongside Brent again if those tensions re-emerge.
The markets
U.S. stock futures (ES00) (YM00) (NQ00) are holding mostly steady, while oil prices (CL.1) are slightly higher. The dollar DXY, meanwhile, is rising in a move that left the yen (USDJPY) at its weakest in 40 years.
Key asset performance Last 5d 1m YTD S&P 500 7440.43 -0.43% -2.10% 8.69% Nasdaq Composite 25,820.14 -1.32% -4.68% 11.09% 10-year Treasury 4.37 -13.20 -7.60 19.80 Gold 4029.4 -2.41% -10.84% -6.99% Oil 70.77 -3.12% -24.22% 23.27% Data: MarketWatch. Treasury yields change expressed in basis points
The buzz
The S&P Case-Shiller home price index is due at 9 a.m., followed by the Chicago Business Barometer at 9:45 a.m., with consumer confidence and job openings both at 10 a.m.
Concentrix $(CNXC)$ stock is down over 22% after the AI-powered customer service platform fell short of earnings expectations and guidance disappointed.
Nike $(NKE)$ earnings are due after the close.
Warren Buffett skips midyear donation to Gates Foundation as he awaits Epstein review.
The chart
The chart from Morgan Stanley strategists led by Martijn Rats shows the Strait of Hormuz has been reopening faster than expected. While flows through the waterway are likely to stay volatile, they counted 35 outbound oil and gas tanker transits on June 25, the first time that count has been between the 30-40 range more typical before the conflict. The strategists said with the pace of the reopening seemingly picking up, yet U.S. exports high and China imports low, they expect a "physical glut." Their Brent (BRN00) forecast has been cut to $75 from $80 and their end-2027 prediction to $70 from $80.
Top tickers
These were the top-searched tickers on MarketWatch as of 6 a.m.:
Ticker Security name TSLA Tesla SPCX SpaceX NVDA Nvidia MU Micron TSM Taiwan Semiconductor Manufacturing GME GameStop MSFT Microsoft AMD Advanced Micro Devices AAPL Apple RKLB Rocket Lab
-Barbara Kollmeyer
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(END) Dow Jones Newswires
June 30, 2026 06:53 ET (10:53 GMT)
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