Citi Analysts Warn Investors About Overheated Sentiment in AI Stocks
In a recent note, Citi analysts have raised concerns about the potentially overheated sentiment in Artificial Intelligence (AI) stocks. According to their analysis, optimism surrounding AI stocks has reached its highest level since 2019, driven by factors such as market expectations and historical price movements.
The analysts point out that sentiment around stocks with high exposure to AI is currently at its peak, with estimates for future growth in these stocks significantly lower than what market prices suggest. Additionally, the recent surge in AI stock prices has far outpaced historical trends, leading to a potential imbalance in bullish bets on AI in the options market.
To capitalize on this situation, Citi recommends that investors consider taking profits on high-flying AI stocks, particularly those in the "enabler" category like semiconductor companies. By doing so, investors can reinvest their profits more broadly across the AI sector's value chain, creating a more balanced portfolio.
For those who are more cautious about the AI market, Citi offers an alternative strategy known as the AI Hedge Basket. This basket is designed to benefit from a potential decline in AI stocks by prioritizing companies with negative correlations to high AI exposure stocks, providing a hedge against potential losses.
In conclusion, investors should be mindful of the current sentiment surrounding AI stocks and consider taking profits to rebalance their portfolios. By diversifying investments across the AI sector and utilizing strategies like the AI Hedge Basket, investors can better navigate the potential risks and opportunities in the market.