AI trade ‘is still alive and well’ despite softening economic data, says J.P. Morgan’s Meera Pandit

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dig right into the market reaction we're joined now by meera pandit global market strategist with JP morgan asset management so the markets you know digesting the consumer sentiment number somewhat in stride kind of more of the same that we've seen for much of this year from a

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sentiment standpoint we've gotten some pretty decent AI indicators over the last few days with the micron earnings there's news that open AI could be raising at a significantly high valuation of eight hundred and thirty billion dollars at least that's what they're targeting how

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important do you think that theme will be going into twenty twenty six

Meera Pandit (Global Market Strategist) 00:35.790

the theme of our outlook next year is AI lift and economic drift so you think about some of these consumer sentiment numbers some of these existing home sale numbers we may continue to see the data around the economy soften but the AI trade is still alive and well and the way we

Meera Pandit (Global Market Strategist) 00:49.390

evaluate that AI trade eval is earnings valuations adoption leverage from an earnings standpoint you've seen double digit earnings growth in the mag seven since early twenty twenty three the upward revisions that are going on within those stocks are pretty impressive for twenty

Meera Pandit (Global Market Strategist) 01:06.790

twenty six in full year twenty twenty five relative to downward revisions for the rest of the index and the earnings surprises that you continue to get out of those stocks continue to be well above the market average so you have past present and future earnings on the valuations

Meera Pandit (Global Market Strategist) 01:20.710

front twenty eight times forward earnings expensive but not extreme certainly nothing like the seventy X you saw in tech stocks coming out of the internet boom on adoption this is a little bit tricky there's a lot of survey data in terms of who's adopting AI and who's not but we

Meera Pandit (Global Market Strategist) 01:36.710

hope to see an increase in business adoption some of that stickier adoption but so far a number of businesses are reporting that they're using AI to produce their goods and services and operating with paid subscriptions and then on the leverage point you look at hyperscaler net

Meera Pandit (Global Market Strategist) 01:50.670

leverage it's about point eight relative to the average issuer in the investment grade space at about two point six so these companies are leveraging their cash and when they are tapping the capital markets for debt they still have you know smart capital allocation they still

Meera Pandit (Global Market Strategist) 02:05.870

have reasonable sound so we still feel like those fundamentals will be intact for next year driving that AI

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trade and there is of course the the rest of the market too on the microfront just today you've got nike lower on its results fedex impacted by cost pressures KB home signing downside risk for next year so it seems like you know outside of AI there are certain situations that

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maybe sounding the alarm into next year is that is that your read as you talk about the economic drift as you call it

Meera Pandit (Global Market Strategist) 02:35.990

as you look at P five hundred returns and you start to see the pickup in the four ninety three it is still very much an AI story it's just that that AI story is broadening out to utilities industrials etcetera a lot of the enablers of overall AI now you have a counterweight in

Meera Pandit (Global Market Strategist) 02:51.630

areas like financials that have still produced very impressive profits could still benefit from things like deregulation steepening yield curve good macro environment so if i'm thinking outside the AI trade that's my favorite area when we think about those fundamentals but again

Meera Pandit (Global Market Strategist) 03:06.270

we still have these looming issues in the background that when you look at margins in the S and P five hundred areas like tech are skewing them higher you look at the the bottom end of the range when we think about margins and some of those consumer sectors are still struggling

Meera Pandit (Global Market Strategist) 03:18.510

and that tariff impact while it may not be a surge in terms of higher pricing and and higher cost pressures it's still going to feed into some of those sectors and they have to be really smart about how they're appealing to consumers in a more K shaped economy where that lower

Meera Pandit (Global Market Strategist) 03:32.990

and middle income consumer is getting squeezed that was