Key insights
- PNC's CIO suggests AI-related semiconductor stocks are outperforming due to strong earnings growth expectations and relative inflation resistance. Recent valuation resets have attracted investors to names like Micron and Intel, despite skepticism about the long-term return on invested capital. The CIO believes we are still in the early innings of the AI investment cycle, implying continued upside for these stocks.
Investors are rotating into major semiconductor stocks as shares of Micron Technology (MU) and Intel (INTC) saw major gains last week.
PNC Asset Management Group CIO Amanda Agati sits down with Yahoo Finance Executive Editor Brian Sozzi to talk about the role that reset valuations have helped Wall Street's new approach to the sector.
it's the Sox Index, it's Nvidia, it's Broadcom, it's AMD. Help us understand why we're seeing a rotation into some of these names here. I mean, we're not talking about low single digit gains the past eight days. We're talking about really strong double digit gains. I think Micron's up 30%.
Yeah, and Micron had an excellent earnings report. I think the the challenge for investors is still something that we've been talking about together for the last few months and what does the path forward for CapX guidance ultimately look like and when does the return on invested capital really start coming home to roost. I think investors are still a little bit skeptical about what inning we're in. We still think we're in the early innings of the cycle here.
Clearly got a valuation reset between the end of the year and just recently. So valuation discounts do make a little bit of a difference. Nothing's cheap per se, uh but certainly a discount relative to where they've been trading. I think was enough for investors to start poking around. And I would just zoom out and say, you know, we're talking about
pressure on energy, industrials, materials, etcetera and the index. Those are not the big heavyweights in terms of earning growth expectations, right? And so when you look at AI related themes, they tend to be inflation resistant. Not not fully protected, but inflation resistant business models, um and there's a ton of earnings growth there. So I think those continue to be in the driver's seat here. Whether we like it or not, there's some defensiveness and protection in all things AI.
Amanda, where do you see cheap stocks at the moment?
Nowhere.
Nowhere? Nowhere.
The market is a little bit cheap.
What would what would define cheap to you then? What what would make something really cheap?
What's that?
Oh, uh, well, I mean, I think in this environment, cheap is broken business models, deep value, um and so we're not backing up the truck in deep value, not against some of the uncertainties in terms of the backdrop. The reality is the market and the economy have a ton of fundamental resilience here. So we don't think the market should be trading at dirt cheap levels.
We did get, again, a little bit of a reset, but I'm surprised how sublime the market's reaction has been as a function of this conflict. A few multiple points came off forward PE. We'll take it. Again, it's not dirt cheap, it's not table pounding cheap, but at the margin, there's some room to nibble.