T. Rowe Price CIO sees AI pullback as buying opportunity

Sébastien Page, chief investment officer and head of global multi-asset at T. Rowe Price, argues that the recent sell-off in artificial intelligence stocks presents a buying opportunity for investors with a medium to long-term horizon. Speaking on Market Domination Overtime, Page noted that while US stocks closed Friday in negative territory, extending weekly losses following this week's AI decline, the broader trend remains intact. He described the current market environment as a break in momentum rather than a fundamental shift in the sector's trajectory.

Page pointed out that naive momentum strategies have outperformed the S&P 500 by 30% annually over the past three years. Despite this week's drop in chip makers, he highlighted that semiconductor stocks are still up about 60-65% over the last year. This discrepancy frames the internal debate at T. Rowe Price regarding positions in momentum assets. Page stated that his view is optimistic on the AI trade for periods ranging from six to 12 months, and from a very long-term perspective, he considers the technology transformational. He noted that the industry is only beginning its adoption phase, with demand present and real GDP growth expected to accelerate in the long run.

When asked about specific areas within the AI trade where investors should look, particularly in light of concerns over CoreWeave's business model, Page advised breaking down the investment thesis along the supply chain. He identified key segments including semiconductors, memory, packaging, cooling systems, data center construction, and energy infrastructure. He emphasized that profitable applications of AI represent the end goal of this chain. With T. Rowe Price employing 300 research analysts, Page said the firm is engaged in discussions about differentiating between players within the theme. His analysts are recommending adding to chip makers, while also evaluating specific names like CoreWeave to distinguish between various business models.

Page cautioned that the AI trade remains volatile due to several structural factors. He cited increased leverage within the trade, heightened uncertainty, and reduced capital availability as key drivers of this volatility. Additionally, he noted that credit spreads are beginning to expand. These conditions make active management more critical for investors seeking to navigate the sector. Page concluded that differentiating across the various components of the AI supply chain is essential for managing risk and capturing opportunities in this volatile environment.