When the market is concerned about the sustainability of AI profits, HSBC shouted in reverse: US stocks are “not expensive”, and the AI structured investment cycle has not yet been fully priced

The Zhitong Finance App learned that HSBC's Willem Sels believes that the US stock market is not as expensive as it seems on the surface. He pointed out that the current valuation still does not fully reflect the scale of the wave of productivity increases and profit growth driven by artificial intelligence (AI).

Sels observed that the price-earnings ratio gap between US stocks and the European market has narrowed, and the so-called “AI structured investment cycle” has yet to be fully priced. Currently, the S&P 500 index is expected to have a price-earnings ratio of about 19 times in the next 12 months, while the European Stoxx 600 index is close to 15 times.

In an interview, Sels, Global Chief Investment Officer of HSBC Private Banking and Excellent Wealth, said, “US stocks are not expensive. The market is indeed questioning the sustainability of profit growth, but this doubt has been digested in prices as the price-earnings gap has narrowed.”

He added that chipmakers in particular are being discounted by investors as the market is still skeptical about earnings growth forecasts for 2027. However, he believes that this doubt will gradually subside as companies provide more specific empirical evidence through order books and performance guidelines.

Sels is optimistic about the stock market as a whole. He believes that although the market has been repeatedly impacted by news fluctuations, economic and corporate performance has proven to be “more resilient than people expected,” and that the government and enterprises respond positively in the face of shocks rather than passively wait and see.

He pointed out that compared to companies that have not adopted AI technology, especially American companies, those that have actively introduced AI have seen stronger growth in terms of profit, revenue, and profit margins, which in itself is a strong proof that AI has brought about an increase in actual productivity.

According to Sels, the single biggest risk facing the stock market is a sharp rise in bond yields. He sees the 10-year US Treasury yield approaching 5% as a potential trigger for volatility. He acknowledged that the market “has long been accustomed to low bond volatility,” but at the same time insisted that strong profit momentum makes it difficult for the stock market to stop its upward trend.

Recently, bond market trends have once again dominated the sentiment of stock investors. As the US-Iran conflict escalates, concerns about oil prices and inflation are once again heating up, and yields continue to rise. Meanwhile, hawkish signals from the Federal Reserve and the European Central Bank, fiscal concerns, and the intensification of capital competition under the AI capital expenditure boom have further boosted the pressure on yields.

Grace Peters of J.P. Morgan Chase pointed out last week that the 10-year US Treasury yield reaching 5% will have an important psychological impact and may trigger a short-term stress reaction in the stock market. Barclays's Emmanuel Cau also said that if the yield rises to 5%, investors' concerns about the outlook for the stock market will increase markedly.

Referring to the European market, Sels believes that, benefiting from industry diversification and the ability of governments and companies to actively build resilience to shocks, the region is less vulnerable to the energy crisis than previous market concerns. He viewed Europe as a good decentralized allocation for investors with highly concentrated positions in US AI trading, and pointed out that the recent rotation of capital from the technology sector to the financial sector has been beneficial to the European stock market.