The correction in global AI-linked stocks should be viewed as a period of volatility rather than the end of the AI investment cycle, according to Ed Yardeni, President of Yardeni Research.
He said investors are reassessing the pace and returns of AI infrastructure spending, but expects the broader technology sector, including Indian IT companies, to remain well positioned as the market matures.
Yardeni expects the US technology earnings season to support the broader market. He said earnings are expected to grow around 25% year-on-year and maintained that the US remains in a bull market. He also believes India’s software services sector is likely to benefit as investors increasingly view AI as part of a wider IT ecosystem rather than a replacement for traditional technology services.
Speaking on the recent selloff in AI-related stocks, Yardeni said the market is experiencing a period of volatility in the AI trade, adding that “every single day, we get a new headline about AI,” creating uncertainty over whether heavy investments in AI infrastructure will generate adequate returns.
On India, Yardeni said perceptions around AI’s impact on software companies have changed. “This ecosystem is not just an AI ecosystem, but it’s an IT ecosystem,” he said, adding that India has “plenty of very positive reasons to invest in the IT sector.”
On US politics, Yardeni said financial markets generally favour institutional checks and balances over concentrated political power. He believes any shift in Congressional control after the midterm elections would make it more difficult for President Donald Trump to pursue aggressive policy measures, including on foreign affairs.
This is an edited transcript of the interview.
Question
How about we begin with tech? There’s lots to discuss on crude, war, and Trump sanctions. But the MSCI gauge of chip stocks last weekend tumbled more than 7%—about 7.5%. And I don’t know if you’re looking at it, but the gauge of the Indian services companies, the software companies in India, rallied about 12% last week, and this was the widest margin of outperformance of the Indian stocks vis-à-vis the chip stocks on record. The AI stocks have gone through a bit of a wobble in Korea, Taiwan, and the US. Do you have any strong thoughts on how you would assess this latest wobble or jitters?
Answer:
We’re just looking at a period of volatility in the AI trade. Everybody has AI fatigue. Every single day, we get a new headline about AI, and it seems to be contradicting what we might have known the day before. And so, there’s a lot of uncertainty, particularly about whether all this spending on AI infrastructure will be profitable. What is a very healthy development is the bond market starting to discriminate between high-quality credits and poor credits. CoreWeave has a tremendous amount of debt that may or may not be supportable with whatever revenues CoreWeave is able to get. So, the bond market took a dive in CoreWeave’s bond prices. In other words, their bond yields have gone up. So, to see the capital markets allocate capital more rationally in the AI trade is a good thing. With regard to India, for a while there, the perception was that AI is bad for software companies, for IT consulting companies, and now there’s a healthier understanding that this ecosystem is not just an AI ecosystem, but also an IT ecosystem, and India certainly has plenty of very positive reasons to invest in the IT sector.
Question
What’s the mood like in the US with regards to the unwind we’ve seen? Is there any panic at all?
Answer:
No, I don’t think there’s any panic at all. As a matter of fact, we’ll see what the bull-bear ratio is for both newsletter writers and retail investors, but last week there was no sign that everybody was turning bearish. Everybody’s kind of gotten used to the volatility in these trades. Something’s down 10% one day, and it could very well be up 10% the next day. I think it’s just the nature of the beast. It’s the nature of this revolution, this AI revolution, which can make your head spin. As I mentioned before, things can change very rapidly, and I think people are having a hard time assessing what that means. And so, it doesn’t take much to cause a one-day panic, and then the market could come right back the next day. I was reading from your screen that the Kospi took another dive of about 3%, and then, on Samsung’s announcement, it rebounded. So, let’s see how the earnings season plays out here for the US tech companies. It’s going to be fine. Earnings overall are expected to be up 25% on a year-over-year basis. So, we’re very much in a bull market.
Question
In two weeks, we have the US midterms. We had someone join us on Friday, and his view was that, irrespective of what happens, win or lose, he thinks President Donald Trump essentially is going to become more unilateral and more aggressive in whatever he wants to do. Do you share that view?
Answer:
No, I think that the system of checks and balances still is working very well in the United States. In financial markets, we call it gridlock, and gridlock is generally deemed to be a positive for the markets. We don’t want the politicians to just have free rein to do what they want to do. With the likelihood that Trump is going to have a Democratic majority in the House and maybe even in the Senate, it’s going to be harder for him to do things. He’s going to be tied up with a lot of assaults from the Democratic majorities that may very well lead to another round of impeachment. So, he’s going to be pretty busy countering all the attacks domestically. I don’t think he’s going to be in a position to get even more aggressive on a global basis.
Question
And if he loses, do you expect some chaos, or do you think he’s going to accept the results and move on?
Answer:
I think he’s going to have no choice but to do that. He can say whatever he wants, but the reality is going to be the reality. We’re going to have legitimate elections with legitimate vote counts, and if the Republicans pull an upset and keep both houses, I’m sure he’ll be overjoyed. Though this idea that he put out there that he’d give $5,000 to every American if he maintained his majorities is kind of outlandish. But, then again, we have a lot of commotion in Washington, and the important thing to recognize is how well the US economy is doing despite Washington.
Question
A quick word with regard to what happens after the elections. Do you expect to see a far more aggressive Mr Trump in the West Asia?
Answer:
What I think we’re going to see is more partisanship. That’s just an extension of what’s been going on for the past several years. The Democratic Party is getting more radical on the left side, and the Republican Party has become more radical on the right side. As a result, it’s getting harder to get things done, which, again, is not a bad thing when it comes to the way investors look at it. However, if we really are going to get ourselves into a fiscal crisis—right now France is in the early stages of a debt crisis—if the United States heads in that direction, and we need a political response to calm the bond market down, that may be very hard to do. So, yeah, elections do have consequences, and this one’s going to be more partisan. And again, I think that’s not going to put Trump in a position where he can act more aggressively. His rhetoric may be more aggressive, but I don’t think he’s actually going to be able to act as freely as he has for the past two years.
For the full interview, watch the accompanying video
AI volatility won’t derail bull market; India’s IT ecosystem has strong outlook: Ed Yardeni
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