Research Digest | AI Sell-Off Sparks Volatility Surge—Is the AI Bubble Bursting or Is It Time to Buy?
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Investment bank Wedbush remains firmly bullish on AI technology stocks. Meanwhile, options traders are betting that US equities will experience significant volatility—a move that echoes the warning from Morgan Stanley’s strategy team led by renowned analyst Mike Wilson.
Market Context: Tech Stocks Under Pressure on AI Bubble Fears
US tech stocks—especially major semiconductor and cloud companies—have come under selling pressure amid increased global market volatility. In the US, names like Advanced Micro Devices, Inc.(AMD.US), NVIDIA Corporation(NVDA.US), Broadcom Limited(AVGO.US), and Intel Corporation(INTC.US) traded lower, though big tech leaders such as Amazon.com, Inc.(AMZN.US), Microsoft Corporation(MSFT.US), and Meta Platforms(META.US) showed relative strength.
Behind the move:
Renewed fears of an “AI bubble” are driving investors to question whether heavy AI-related spending will translate into sustainable profits, given concerns around high valuations, rising debt, and future earnings growth.
Wall Street Views: Investment Opportunities
| Institution | Core View | Investment Stance/Action | Rationale/Key Quotes |
|---|---|---|---|
| Wedbush | Strong Buy on AI Tech/Chips | "Buy-the-dip" semiconductor & storage chip stocks | "Demand is still accelerating; no cracks in AI spending. Recent dips offer strong buying opportunities." |
| Morgan Stanley | Defensive / Risk Warning | Caution on overall equities, warns of volatility; no buy call | "Liquidity tightening and peak earnings momentum signal heavy turbulence. Focus on downside risk." |
| Others (PNC, EP Wealth, Stifel) | Mixed / Barbell Strategies | Prefer neutral-to-underweight tech; overweight energy & industrials | "Valuations are high—diversify away from crowded tech. Watch for Fed moves, inflation risk." |
1. Wedbush: "Buy the Dip" in AI Chips
- Wedbush (Dan Ives team) remains highly bullish on AI technology stocks, viewing current declines as tactical entry points for US semiconductor leaders.
- Recent Asia channel checks and demand tracking show “no cracks” in AI infrastructure growth—justifying continued overweight.
- The team strongly refutes the idea that memory/AI chip trades are overheating, citing multi-year secular tailwinds, real demand, and scarcity value.
- "Sell-offs represent healthy corrections after large YTD rallies, not bubble-bursting events."
2. Morgan Stanley: "Prepare for Volatility"
- Morgan Stanley (Mike Wilson) issues a clear warning: US equities face significant turbulence ahead.
- Main reasons: Liquidity tightening (Fed balance sheet runoff, less Treasury buying, higher credit creation), and recent peak in earnings revisions.
- Short-term risk isn't just rate hikes, but tightening liquidity/funding, which threatens overall market stability rather than just high-profile tech.
- No immediate buying opportunity: investors should manage risk, expect choppy conditions.
3. Options Market: Risk Protection in Focus
- Traders are heavily buying VIX call options—the highest ratio of VIX calls to puts YTD—betting on sharp market swings.
- Asset allocation recommendations from PNC and EP Wealth:Neutral on equities overall; reduce exposure to high-valuation tech, increase in energy/industrials as hedges. Watch for upcoming inflation data (PCE deflator) as potential high-impact catalyst.
Key Stock Opportunity: Micron (MU) Upcoming Earnings as AI Gauge
- Micron Technology, Inc.(MU.US)’s earnings (to report soon) serve as a key market litmus test:
- Street expects record growth, with adjusted EPS projected to jump nearly 1000% year-over-year to $20.57, according to FactSet. The surge in profits is mainly driven by booming AI-related demand for memory chips, pushing prices sharply higher.
- FactSet: Excluding NVIDIA Corporation(NVDA.US) & Micron Technology, Inc.(MU.US), S&P 500 index(SPX.US)’s projected Q2 earnings growth would drop from 22% to 14.9%.
- If Micron confirms strong AI demand/capex, it could reignite AI bull sentiment and offer tactical long entries in semis.
- Footnote: Stifel calls this an “historic” upturn for memory—Micron is in a "golden window" for profit, making its results particularly important for US market direction.
What to Watch Next
- Near-term: US May PCE price index (Fed’s key inflation gauge); critical for market direction.
- Medium-term: Fed policy signals (timing of possible hikes or delay of cuts), liquidity trends, and ongoing Q2 tech earnings.
- Market Positioning: S&P 500 close to highs; flows remain strong, but index needs new catalysts for extension.
Bottom Line for Investors
- Contrarian Opportunity: Wedbush urges buying high-quality AI infrastructure stocks into the pullback—focusing on semiconductors/memory and enablers (Micron, Nvidia).
- Risk-Control Needed: Morgan Stanley and many fund managers warn of volatility and urge prudent risk management, hedging, and sector rotation (tech to energy/industrials).
- Catalyst Watch: Micron’s earnings and US inflation data are pivotal—confirming a sustained AI upcycle may spark a renewed rally in tech, but disappointing data could fuel further volatility.
Investors should closely track upcoming earnings and policy signals for high-conviction trading setups, balancing AI upside against broader macro risk.
Disclaimer: The content is provided as general information only and should not be taken as investment advice. All the contents shall not be taken as a recommendation to buy or sell any security or financial instruments. Any action you take resulting from information, analysis, or commentary on this article is your responsibility. Please consult your investment advisor before making any investments.