HSBC analysts Willem Sels and Lucia Ku argue that concerns about mega IPOs and stretched US stock valuations are offset by solid earnings growth across most S&P 500 sectors, driven by artificial intelligence demand. They emphasize that positive earnings momentum extends beyond technology and maintain an overweight stance on U.S. equities, viewing near-term volatility as a buying opportunity.
The AI cycle supports US stocks
“While mega IPOs have come into the spotlight recently amid market concerns about elevated valuations and investor profit-taking after periods of trading shutdowns, we believe earnings growth for most S&P 500 companies remains favorable and valuations remain reasonable by historical standards. Positive earnings momentum extends beyond IT and communications, with the energy and materials sector also benefiting from building the data centers needed to support AI-driven innovation.”
“Consensus earnings growth forecasts for 2026 are above 10% in most sectors (23% overall), except consumer staples and real estate. The United States is also less exposed to downside risks from conflict in the Middle East.”
“Given these positive factors and our strong belief that the AI innovation cycle will remain intact, driving greater demand for U.S. assets, we remain overweight U.S. equities and are more bullish on the U.S. dollar. We would view any near-term market volatility as a buying opportunity, while remaining diversified with high-quality bonds, gold and alternative assets.”
(This article was created with the lend a hand of an artificial intelligence tool and has been reviewed by an editor.)
