The recent correction in artificial intelligence-related technology stocks is being driven more by a shift in investor sentiment than by a change in earnings fundamentals, according to Drew Pettit, Chief Investment Strategist at Roundhill Investments.
While he expects near-term volatility to continue, Pettit said the long-term earnings outlook for memory companies remains intact. He also said improving earnings revisions would be the key catalyst before he becomes more constructive on Indian equities.
Pettit said investors are moving away from focusing on short-term pricing power and are now questioning the long-term durability of artificial intelligence (AI) infrastructure earnings. However, he noted that earnings estimates for memory companies continue to improve.
He distinguished memory chip makers such as Micron, Samsung and SK Hynix from AI cloud infrastructure companies like CoreWeave, saying the former do not face the same balance-sheet risks. While CoreWeave has seen earnings revisions move lower for 2026, 2027 and 2028 and faces concerns over rising borrowing costs, major memory companies continue to benefit from supply constraints and resilient earnings expectations.
On India, Pettit said Roundhill remains constructive on emerging markets overall but is waiting for a stronger earnings trend before raising exposure to Indian equities. While he acknowledged the valuation argument, he said earnings revisions remain the primary factor in his investment process. He added that he would like to see earnings estimates stabilise and move higher before becoming more positive on India.
This is an edited transcript of the interview.
Question
We’ve seen these corrections in the Kospi and in these individual names before, but the question is: Is this time different? Because it comes on the back of debt mounting at some of the companies, not all, and also an unprecedented increase in the kind of interest rates we’ve seen in the US. Is this time different?
Answer:
Right now, a couple of things are different. Number one, I think the narrative’s different. So, when we think about a lot of these tech names, especially around memory and the infrastructure build-out, people were talking about short-term pricing power. That was a reason to get into these trades. The reason to stay in these trades is the longer-term durability of earnings. So, people are now questioning that, and it’s harder to prove out in real time that this isn’t a commodity-like industry anymore. Instead, it is more driven by long-term supply contracts and so on. So, the narrative’s changing, and when the narrative is changing, people sell first and ask questions later. So that’s what’s changing. What’s not changing is the earnings revisions in the near term. Earnings momentum is still really strong here. We have a lot of exposure in the memory space at Roundhill, and this is a place where we feel a little bit uneasy in the short term, but we do think the longer-term earnings trends and the supply bottleneck will continue to exist.
Question
In that sense, nothing has fundamentally changed.
Answer:
No, and if something has fundamentally changed, we won’t know for some time. So that’s the problem. Right now, the bears are winning because there’s this void. I can’t prove that this industry is going to look better in 10 years. I’m not really sure that commentary in the upcoming reporting period is going to help. We might need a couple of quarters where this becomes a little bit more of a “show-me” story, unless you start seeing acceleration in other places. Now, there are some other areas. I heard you mention CoreWeave before, and some of the neoclouds. Those have actual debt-related problems coming up right now. So that’s more near-term pressure there. But I would say that Micron, Samsung, and Hynix don’t have the same debt pressure on their own balance sheets, even though some of their customers might.
Question
This CoreWeave—is it a big issue? I mean, have you looked at this in any detail, or is this like a one-off? What’s your sense?
Answer:
So, it’s a little bit of a messier story because, unlike the memory names that I mentioned, where revisions keep going higher and higher and higher every time we talk, CoreWeave has seen revisions move slightly down for 2026, 2027, and 2028. So, it doesn’t have the short-term tailwind, and then you throw in the headwind of debt continuing to become more expensive. If you start worrying about whether these guys are going to have the capital to continue the build-out, you can understand why there’s more pressure there in the near term. So, I get it. Anything that’s run up a lot, and anything that’s had any sort of momentum in the past year, has underperformed the most in this sell-off. So, it does feel positioning-driven in that sense. But again, the longer-term fundamental earnings story is still intact. This is headline fear and repositioning for now. Fundamentals are to be determined.
Question
In your earlier avatar, you were not too bullish on the Indian markets. Now it seems, there’s some kind of uncertainty in other Asian markets. The Kospi, as well as Thailand, have seen some kind of profit-taking there. India has underperformed. We haven’t been top of the pops for the last two years or so, at least. Earnings are coming back. The rupee is stabilising a little bit. Would you be interested in the Indian markets from the emerging market basket? Does it move up in the pecking order?
Answer:
So, it’s funny. Broadly, emerging markets, we actually do like. You get kind of an interesting mix of cyclicals and growth. As for India, the one thing that will get me more positive—I’m not quite there yet. I always feel like I’m the bearer of bad news—is that I understand the valuation argument. I heard it earlier on the show, but it’s the earnings revisions that I keep coming back to because when I look at stocks right now, or indices, or sectors, the most important thing is revisions, and the earnings revisions for the Indian index are still kind of down and to the right. I would like to see some stabilisation there, potentially with revisions moving higher as a catalyst for me to buy into what is set up as a much better valuation story.
For the full interview, watch the accompanying video
Drew Pettit: Improving earnings revisions are key for a bullish view on India
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