AI Tech Stocks Face Headwinds: Analyst Warns of Market Risks as Optimism Wanes

Analyst Warns of Potential Risks in US AI Tech Stocks Amid Declining Optimism

Albert Edwards, a strategist at Societe Generale, has raised concerns about the sustainability of US AI tech stocks, citing declining analyst optimism as a potential risk for market performance. Historical data suggests that reduced analyst optimism often precedes poor stock-market outcomes, adding weight to Edwards’ cautionary stance.

The 12-month moving average of analysts upgrading earnings-per-share forecasts has seen a notable drop, according to Edwards. Despite this decline in optimism, the Nasdaq 100 continues to perform well, raising questions about the sustainability of current market trends. Historically, declining optimism has often coincided with the Nasdaq dipping below its 200-day moving average.

A growing disconnect between analysts’ earnings expectations and actual earnings performance is becoming apparent. Trailing earnings are flattening, while forward estimates for the S&P Composite 1500 are turning downward. Edwards points to a concerning trend of lower highs and lower lows in analyst optimism for the S&P 500.

The market’s vulnerability is further highlighted by the fact that tech stocks now represent a larger market share than during the dot-com bubble. With US stocks accounting for 75% of the global market cap, Edwards warns that current exuberant investor outlooks could lead to significant downside risks.

Several potential catalysts for a market pullback have emerged. The release of a new AI chatbot by Chinese firm DeepSeek challenges US AI infrastructure spending, while uncertainty surrounding President Trump’s tariff policies adds to market instability. Economic concerns are also mounting as Walmart forecasts lower sales and consumer sentiment remains cautious about inflation.

While the potential for a market pullback remains uncertain, with Wall Street strategists maintaining bullish year-end targets, Edwards advises investors to closely monitor key charts and trends to anticipate possible market shifts. As the landscape of AI tech stocks continues to evolve, market participants are urged to remain vigilant in the face of changing analyst sentiment and economic indicators.