From the New Testament, “Blessed are the meek, for they shall inherit the earth". In the context of markets, the much loved AI infrastructure names (semiconductors, chips memory, data centres), the leaders, aren’t leading despite what’s been a spectacular earnings season for them. In the meantime, software services have quietly assumed leadership - IGV has outperformed SOXX by over 60% points since late Jun lows - meekness does not mean weakness!
The reality is that the market lacks mojo. But are there some that do have momentum? A quick screening for S&P constituents in an uptrend (above 20day and 50day moving averages) with momentum backing (RSI > 60) reveals a mere 78 stocks (c16%). This is in sync with just about half of S&P stocks above their medium-term moving average - hardly the stuff of all time highs. Of the 78 stocks ( email investmentideas@lighthouse-canton.com for full list):
- Most stocks have a “services” element to them - precisely the part of the business that faces most disruptions from AI adoption.
- 25 stocks are in technology services - and includes software services that are likely to be most impacted by AI adoption - Salesforce, Accenture, Workday, Intuit are standout members of this list
- 15 stocks are in health tech/ health services
The near 30% rally in software services (IGV) from Jun lows reflects bearishness that is yet to play out in numbers. Equally, the 20%+ decline in AI Hardware (SOXX used as a proxy), despite stellar numbers reflects bullishness that is perhaps already priced in - “What’s in The Price” - is the hardest question in markets - markets move in anticipation, not on history.
The medium-term prognosis on software services remains challenged - not existential, but their charging model and margins. Equally, the fundamental case for AI Infrastructure remains robust and if anything, stronger. YET, and for now, trade with the trend - and that remains favorably aligned with the meek!
Software Outperforming vs. Semiconductors - But Only After A deep Drawdown…
S&P Stocks In an Uptrend With Positive Momentum (please ask for full list at investmentideas@lighthouse-canton.com)
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