As the Federal Reserve's easing cycle approaches, can large-cap technology stock
After a brief slump at the beginning of the month, technology stocks have seen a strong rebound this week. By the close on Wednesday, they had regained most of the ground lost last week. With the Federal Reserve's interest rate cut imminent, investors have shifted their focus to the economic outlook and industry fundamentals.
At the same time, there is still significant institutional divergence, with Morgan Stanley warning that the artificial intelligence theme is "overheating," while UBS remains optimistic about capital expenditures related to artificial intelligence.
The Federal Reserve's interest rate cut is expected to benefit growth stocks. The semiconductor sector, represented by NVIDIA, has been a market leader over the past two years and is seen as a representative of the long-term growth story of artificial intelligence. Investors believe that the growth runway of artificial intelligence and its potential to increase productivity can both help with the release and expansion of corporate earnings.
Since the second half of the year, concerns about the slow return on large-scale artificial intelligence investments have been troubling the most valuable companies on Wall Street. BlackRock wrote in a client report: "Some recent studies question whether the revenue from artificial intelligence alone can ultimately justify these capital expenditures. When assessing key companies' artificial intelligence capital expenditures, investors must consider whether they have fully utilized their balance sheets and capital."
Advertisement
Monetary policy may become an important variable next, and investors are closely watching the future path of the Federal Reserve. Morgan Stanley stated that with the Federal Reserve's interest rate cut in September, good news is once again good news, supporting the prediction of a soft economic landing.
Sid Vaidya, Chief Investment Strategist at TD Wealth, said that against the backdrop of a stable U.S. economy and the Federal Reserve starting to cut interest rates, growth stocks and small-cap stocks can benefit. He expects the U.S. economic growth to slow slightly in the second half of this year, but rebound to around 2.3% next year, with the Federal Reserve likely to cut rates by 75 basis points before December and another 150 basis points by 2025. "This is important. We see some cooling in the economy and the labor market, but expect this pullback to be temporary."
UBS Wealth Management said in a report to First Financial Daily reporters that as the labor market cools faster than expected and inflation continues to slow, the Federal Reserve is expected to continue cutting interest rates in a row. "It is worth noting that historically, the Federal Reserve's interest rate cuts during non-recession periods have often been beneficial to the stock market, so we continue to be optimistic about high-quality growth stocks."
UBS believes that multiple signs indicate that artificial intelligence infrastructure is still in short supply, indicating that capital expenditures related to artificial intelligence are expected to continue to grow—all major cloud service providers have confirmed this trend. The institution has noticed that positions in some leveraged and arbitrage funds have rebounded, although they have not yet reached the extreme levels seen earlier in August.
Morgan Stanley says the artificial intelligence theme is overheating.One of the vane indicators of the artificial intelligence industry last week was the Philadelphia Semiconductor Index, which fell by more than 12%, reigniting market concerns about the industry's prospects. Morgan Stanley's equity strategist, Mike Wilson, stated that the AI boom that drove the S&P 500 to a record high earlier this year is fading. Therefore, if the stock market is to resume its rebound, a new catalyst is needed.
This star analyst believes that although artificial intelligence is likely to change productivity over time, it is premature for investors who are raising stock potential in the short term. He added, "The dream of artificial intelligence—that luster has faded. We have just gone overboard on the entire AI theme. However, this does not mean that it is over."
In the second half of this year, the U.S. stock market has shown clear signs of sector rotation, with many funds beginning to shift towards cyclical sectors in search of valuation repair opportunities. Wilson reiterated his preference for high-quality defensive stocks and recommended sectors such as utilities, consumer staples, and healthcare, as the enthusiasm surrounding chipmakers is waning, at least temporarily. "Investors may take shelter in these industries until they get a clear answer, whether it is a bad outcome or a positive one."

Coincidentally, the well-known investor and economist Marc Faber, known as "Dr. Doom," warned in a recent interview that he does not currently believe the market is about to crash, but he is cautious about the U.S. stock market and continues to pay attention to stock valuations. "A few stocks are driving the market higher, and any stocks related to artificial intelligence are severely overvalued."
Faber stated that, by historical standards, the market as a whole is very high now, especially the most popular AI sector. Secondly, due to inflationary pressures and weak demand, U.S. corporate profit margins will decline. Many industries in the United States face the issue of affordability, which reduces demand and thus lowers profit potential.
Faber also mentioned a significant factor that the U.S. economy may face in the coming years—fiscal deficits. Due to the impact of the Federal Reserve's tightening cycle, as U.S. debt rises, the pressure to repay interest is already strained. He believes there are three potential options: first, increasing taxes, which could affect the direction of elections and Congress, second, cutting government spending, and third, driving inflation, all of which could bring a period of pain.