The strength of the artificial intelligence (AI) tailwind will determine the length of the current equities bull run, according to one Citigroup executive.
Scott Chronert, Citi’s head of US equity strategy, says in a new interview with CNBC that extended valuations are “an issue and a cause for concern.”
“The way we like to bucket, though, is that it’s not the valuation circumstance itself that’s the issue. It really keeps coming back to the ability of earnings and fundamentals to justify said valuations, and you’ll look back historically at previous points in time when there’s been this much being paid in the market for let’s call it a new growth paradigm.
Usually, what brings the bull market to an end is that coming to an end as well, that underlying fundamental premise. That happened when the tech bubble burst, it happened at the end of 2021. So, from here we’re at a similar starting point, the question is how long and persistent this AI tailwind can be in terms of supporting a fairly visible fundamental outlook. As long as we see that visibility, equities are going to be in good shape.”
Chronert says it’s important to take note of the “massive free cash generation” coming from tech giants as their business models mature.
The cash gives tech firms flexibility, according to the Citi executive.
“So one of the games that we’re going to be watching here is the ability of these companies to continue to moat-build, whether it’s buying new technologies, or it’s buying potential sources of new demand and so forth, they can do it. They’ve got the free cash generation to do it. It perpetuates the theme here.”
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