J.P. Morgan Research28 September 2026

Tech de-rating became advanced in a number of areas

Equity Strategy

Mislav Matejka · Prabhav Bhadani · Nitya Saldanha · Karishma Manpuria · Anamil Kochar下载原始 PDF

Broad Tech/AI ecosystem has stalled for 3 months, from June till last week - top chart. Where to from here? We find positioning in the space is cleaner, derating in a majority of areas has been very significant, capex upswing will likely stay intact, despite some recent slowdown headlines, earnings strength is continuing, and monetisation cases are building, all of which should support re-engagement with the group, in our view.
While the Tech performance likely improves vs last 3 months stalling, we called for momentum unwind in the summer, given extreme positioning at the time, and argued that in 2H Tech/AI was unlikely to dominate, unlikely to be “the only game in town.” We maintain this stance of no return to past extreme levels of success, but still we find plenty of opportunities within AI complex.
Software vs Semis showed an exceptional squeeze two weeks back, on the back of the frontier models slowdown news. We are skeptical that much slowing will materialize in the end, as the race remains an existential, winner takes all, one. We argued at end July that one should return to a bullish Semis stance, on continued strength in earnings. The price vs profits gap that opened up during the summer’s momentum unwind episode is significant. This should help Korea, and indirectly EM, to work, as well.
We entered the year with a continued cautious call on stocks at risk of AI cannibalisation, mainly in Software, Business Services and Media sectors, but have in March argued that better trading was likely, as the space had a torrid spell of performance - middle chart, and as valuations have turned record cheap. Fundamentally though, the profitability of the group will keep being questioned, we fear, and this set of stocks is likely to lag other parts of the AI ecosystem. We do not think Software is a good naked short, given the dramatic de-rating, but Semis vs Software pair trade should be re-entered. In 1H, when Semis hands down beat Software, relative earnings trends confirmed this. Since June, the reversal in price performance took place, but Semis forward earnings continued to move higher, by 30%, in contrast to Software, which saw almost no earnings uplift.
Mag-7 have been de-rating, as well, to now be the cheapest in 10 years - bottom chart. In March, we highlighted that this might have become overdone, too. To be clear, we think that the changing business models, with higher leverage and falling free cash flow, do call for multiple compression, but a chunk of that has already happened. The performance of hyperscalers will likely be supported by earnings strength, a part of which could be taken away in possible further de-rating, but not all.
At the overall market level, we keep the view that it is set to resume advancing once oil&rates volatility subsides, and September poor seasonals move behind us. This is especially the case as we are approaching what will likely be strong Q3 results, in October. Better Tech performance would clearly be a help for the market, given the big weights. Having said that, we do not think that it is critical, the market might not need AI to outperform in order to progress higher. Case in point is the episode of momentum unwind, where Kospi, SOX etc. all had big falls during June-July, but overall equities held up, and made fresh highs in August, before the recent bout of Brent/yields driven volatility.

Tech de-rating became advanced in a number of areas

Tech de-rating has become advanced… where does the sector go from here?

The Tech/AI rally seen at the start of the year stalled over the summer, on a combination of stretched positioning and concerns over the durability and monetization of AI capex.

Korean equities in particular took a hit as concerns over potential memory demand destruction were amplified by the growth of leveraged ETFs. Our Asia Tech sector research team flagged that investor concerns are driven by: 1) HBM de-specification (downgrading to cheaper/ slower grade); 2) Algorithmic efficiency reducing memory consumption per function; 3) Offloading more KV-cache (“scratchpad” of everything an AI model processes when interacting with a user) storage to lower memory tiers such as DDR or NAND, among others.

Global Tech relative performance has been stabilizing over the last two months, and the recent launch of MetaMuse has reignited interest in the sector. While AI demand itself is not under debate, the question of where the value will accrue is still in focus.

Tech may not return to past levels of success… still, the fundamental case is constructive and there are plenty of opportunities within the AI complex….

With positioning in the space cleaner, we called in late July for stabilization and re-engagement. We argued that while Tech should fare better given strong earnings, fundamental support and a better starting point post positioning unwind, the group was unlikely to lead market returns.

Figure 5. US Semis vs Software positioning

Crowded positoning in the Semis space is being unwound, while Software shorts/weak positioning in Software is also normalizing.

Software stabilized, post a poor spell… one should not overstay their welcome, though...

Software stocks have underperformed since mid-last year, as investors feared their business and revenue models would no longer be relevant with the growth of AI.

The group’s underperformance vs. SOX is notable. There has been growing interest in the sector since the summer though,

driven by reassuring corporate commentary during the earnings season, and the more recent call by AI leaders for a pause in the development of their models.

Table 1. Top instances when S&P500 Software vs SOX had biggest 1 day move

Anthropic CEO Dario’s comment on the need to “pace the AI frontier” led to a 12% Software vs. Semis outperformance on the day.

Figure 8. MSCI World Semis vs Software price relative

Table 2. MSCI World Semis vs Software Price, EPS and PE move around peak

Still, since the peak in Semis vs Software in June, earnings upgrades in Software have not materialized, while Semis stocks have continued to see upward EPS revisions.

Figure 9. MSCI World Semis vs Software Price and EPS relative

While we do not think Software is a good naked short, given the dramatic de-rating, the Semis vs. Software pair trade could prove to be more interesting. We are skeptical that much slowing will materialize in the end, and the growth of AI still questions the long-term outlook for Software. Lower model costs reduce barriers to entry for software companies and in-house software development, and there are already signs of intensifying competition in the sector. We note that a meaningful gap has opened up between the relative price performance and relative EPS of Semis vs Software, which could be a good buying opportunity.

Figure 10. JPM US Security Software basket performance relative to S&P500

Within Software, shares of cybersecurity companies have rallied meaningfully in recent months, as security threats posed by AI models become increasingly more worrisome. While some of these stocks have fairly rich multiples now, AI security theme is likely to remain a relevant one.

… we maintain our preference for Semis

At the same time, Semis stocks have taken a hit, exacerbated by extreme positoning, as investors pose a number of questions on the longevity of the trade. These include potentially lower compute requirements, regulatory risks, and the feasibility of the next leg of Hyperscaler capex as cash flow turns negative, as well as concerns around competition from China and demand risk from customers moving to lower-grade chips.

Figure 11. US Semiconductor sales growth

However, our Semis research analysts emphasize that the growth outlook for the sector is strong: industry fundamentals remain healthy, with demand-supply balance unlikely before 2028 and pricing expected to keep rising into 2027see reports from our sector analysts here and here.

Figure 12. Hyperscalers capex forecast into 2030

They also highlight that AI economics still support buying compute, model advancements are accelerating, and there is room for strong capex growth over the next two years via operating cash flow growth, debt issuance, and equity funding.

Table 3. Tech company commentary on demand outlook

Company commentary this quarter suggests demand is still accelerating.

Figure 13. MSCI Europe Semis - Price and EPS relative

Given the solid fundamentals and continued upward revision of earnings estimates, we believe the recent pullback in Semis is healthy. With positoning in the space now cleaner, we think our bullish Semis stance should have legs.

Figure 14. MSCI World Semis price relative and EPS relative

The gap between Semis price performance and earnings delivery is notable for global indices too.

Our US Equity Strategy team have also outlined their bullish stance on US Tech sector here and here.

Figure 15. MSCI EM vs DM and EM Tech relative ($)

Better trading in the Tech sector should help Korea, and indirectly EM as well.

Key trades within the Semis supply chain

Figure 16. Global SPE shipment trend excluding China, $bn

Within Semis, our sector analysts flag the SPE sub-sector as an important beneficiary of higher capex, with ASML being the key European SPE.

Interestingly, ASML is trading cheap on PEG ratio, as investors bet on earnings downgrades. Our sector analysts, however, view this as a good buying opportunity, believing fundamentals for the group will ultimately prove to be solid.

Figure 18. ARM, AMD and Intel Weighted Price (rebased to 100)

In addition, the recent launch of MetaMuse drove a spike in not only its own share price, but also the share prices for a number of Semis stocks, particularly those focusing on CPUs.

Meta is now trading at all-time-highs.

Figure 20. US CPU Ecosystem Basket performance relative to S&P500

J.P. Morgan’s US CPU Ecosystem Basket provides exposure to leading US-listed companies at the forefront of CPU design, manufacturing, and enablement.

Figure 21. CPU:GPU shift in agentic AI applications

While the rise of Agentic AI should imply greater compute, we note that the CPU/GPU ratio broadens with this transition in technology. Our Tech research team higlights that the traditional LLM infrastructure has a GPU-heavy architecture, with CPU/GPU ratios of 1:4 to 1:8. For Agentic AI, that ratio shifts towards 1:1, and could even become CPUheavier as agents create more orchestration, data movement, tool-use, and state-management workloads.

Figure 22. EU stocks challenged by Agents basket, performance relative to Stoxx600 - JPEUCBA Index

On the other hand, the rise of Agentic AI could pose risks to stocks that currently benefit from consumer inertia, search friction, switching costs or traffic control. The basket of EU stocks most exposed to this theme underperformed sharply on the announcement.

Figure 23. US Consumer Agentic Vulnerable basket performance relative to S&P500 - JPUXCAIV Index

Similarly, the US basket of Consumer Agentic AI Vulnerable stocks includes consumer-facing platforms across travel, discovery/ads, marketplaces, fintech, and insurance that are dependent on user interaction in site/app. If agentic AI becomes the default consumer interface, reduced traffic/leads could pressure margins.

Mag-7 and the Hyperscalers index have been derating… we think this might have become overdone...

Mag-7 has been underperforming the market this year, and is now trading flat ytd.

The group has de-rated to nearly one standard deviation cheap, standing at 10-year lows.

Figure 26. Hyperscalers price relative to S&P500

The Hyperscaler index - comprising of Amazon, Alphabet, Microsoft, Meta and Oracle - is underperforming by 8% ytd.

Figure 27. Hyperscalers 12m Fwd P/E relative

While some of the multiple compression can be justified by the changing business models from asset-lite to asset-heavy, relative PEs at more than one standard deviation cheap is likely overdone.

Table 4. Hyperscalers Free Cash Flow breakdown

Indeed, with the surge in AI capex, free cash flow for these companies is turning negative.

Figure 29. Hyperscalers debt issuance and net debt to equity

As a result, debt and equity issuances are rising, to fund spending needs.

Figure 30. Anticipated AI Capex Funding Sources

Our credit team outlines the likely AI capex funding sources. They remain confident that the market will absorb the incremental supply with only a limited impact on corporate spreads - see report.

Another often quoted concern is their ability to monetize, as well as foundational models not having strong enough moats. Token prices have plummeted in the past months.

Figure 32. Snapshot of weekly token spend

However, the explosive increase in consumption more than off-sets the fall in token prices for now, with total spend in fact rising, and monetization cases building.

Despite these headwinds, we believe most of the the de-rating is already behind us, and the performance of Hyperscalers should be supported by solid earnings growth.

Table 5. Hyperscalers Investment Thesis and Key Risks

We outline the investment thesis and key risks from our sector analysts for each of the US hyperscalers.

… on the other side, the AI cannibalization trade may not get fundamental support

Figure 34. AI vulnerable baskets price relative

We have maintained a cautious stance on stocks at risk of AI cannibalization, including those from Software, Business Services and Media, but in March noted that this group could also trade better given the magnitude of underperformance.

Figure 35. European stocks at risk from AI adoption basket median 12m Fwd P/E relative to Stoxx600

Valuations for the group are near record cheap.

Figure 36. US AI Vulnerable basket median 12m Fwd P/E relative to S&P500

The group trades cheap in the US, too. Fundamentally though, the profitability of these stocks will likely keep being questioned, and the space could continue to lag other parts of the AI ecosystem.

At the overall market level, equities should resume advancing as oil & rates volatility subsides, and as we approach Q3 results

Last week, the US 10 year bond yield crossed the 5% threshold for the first time in two decades, driven by a combination of higher energy prices, strong PMI component prints, underwhelming 5y auction and some hawkish comments from Fed governors.

Figure 38. Fed funds futures - Dec ‘26 and US 2Y bond yield

Markets are now pricing in 38 bp of additional hikes by yearend. Our Rates strategists note that the 2Y UST yield has caught up with Fed rhetoric and growth expectations, which could provide some near-term support for the front-end.

Oil prices rose on escalating US-Iran tensions, while diesel also came under the radar on news that Trump would impose an export-ban.

Figure 40. Seasonality of MSCI US performance

Adding to investor concerns are the poor seasonals typically seen in September.

Encouragingly, markets are digesting the volatility well, with S&P500 and Stoxx600 down 1-3% from their highs.

Table 6. S&P500 and Stoxx600 Q3 ‘26e Earnings Growth

Once oil and rates volatility subsides, and September's poor seasonals move behind us, the market is likely to re-focus on the upcoming reporting season, which is set to be another quarter of robust earnings.

Table 7. Weight of Tech sector in key regions

Better Tech performance would help the market resume advancing, given the meaningful weight of Tech in most indices.

Table 8. Key regions move from June-July

Having said that, we do not think that Tech outperformance is critical for the market to rally. Notably, during the episode of momentum unwind, where Kospi, SOX, and other AI trades all had big falls during June-July, overall equities held up during that time, and even made fresh highs in August, before the recent bout of Brent/yields driven volatility.

Appendix

Table 9. European stocks potentially challenged by Agents - JPEUCBA Index

Figure 42. JPM European stocks potentially challenged by agents basket performance relative to Stoxx600

Table 10. US Consumer Agentic Vulnerable - JPUXCAIV Index - Constituents and YTD performance

Table 11. US Security Software Basket - JP2SESF Index - Constituents and YTD performance

Figure 43. JPM US Security Software basket performance relative to S&P500

Table 12. US CPU Ecosystem Basket - JPCPUECO Index - Constituents and YTD performance

Figure 44. JPM US CPU Ecosystem basket performance relative to S&P500

Table 13. US AI Vulnerable Basket - JPAIVUL Index - Constituents and YTD performance

Table 14. European stocks at risk from AI adoption - JPEUAIL Index - Constituents and YTD performance

Table 15. European stocks at risk from AI adoption - JPEUAIL Index

Figure 45. JPM European stocks at risk from AI adoption basket performance relative to Stoxx600

Figure 46. S&P500 IT 12m Fwd PE relative

Figure 47. MSCI Europe IT 12m Fwd PE relative

Figure 48. Top mispriced stocks amid AI Disintermediation basket median 12m Fwd P/E relative to S&P500

Equity Strategy Key Calls and Drivers

Global equities are up 15% so far ytd, TR in USD, and we stay bullish into year end. We expect continued strong earnings delivery, and note weekly EPS revisions have moved outright positive in all regions. This is aided by a rebound in PMIs, where Eurozone PMIs in particular are up for 3 months in a row, and CESIs remain strong. The latest US ISM print was also very strong, reaching a 4 year high. On the other side, we do not expect rising bond yields to present an insurmountable obstacle for stocks, as most of the upmove should be reflecting stronger activity momentum. Term premia has largely normalized, and we do not see inflation expectations becoming de-anchored, as wage growth is soft, and labour markets mixed. Central banks might deliver less tightening than is currently priced in. Additionally, we looked for USD peaking, and for gold to bounce after 20-25% weakness since the Iran conflict started. USD positioning remains elevated, and rates activity differentials are narrowing. We have also consistently argued since 2nd half of March to use any equity weakness brought on by the Iran conflict to buy into. The flare ups are continuing, but the impact on oil might get more muted, supply is likely to be structurally higher, and if one joins selling during derisking episodes, one risks being whipsawed on any favourable headline. At the overall index level, we looked for fresh highs for equities in 2H, and call for further gains. Notably, non-US stocks are faring well, ahead of US for a 2nd year in a row. We think this can continue. Finally, we note that Low Vol groups are back to lows, with Staples, Utilities etc relatives faltering. All Defensive sectors are in the bottom half of performance in Europe in the past month. EPS momentum of Cyclical sectors is accelerating, we look for Mining, Banks and Capital Goods to keep rallying, and Semis to keep stabilizing.

Table 16. J.P. Morgan Equity Strategy — Factors driving our medium-term views

Table 20. J.P. Morgan Equity Strategy — Key sector calls*

Table 21. J.P. Morgan Equity Strategy — Key regional calls

Top Picks

Table 22. J.P. Morgan European Strategy: Top European picks

Equity Flows Snapshot

Figure 49. DM Equity Fund flows – last 12 months

Figure 50. DM Equity Fund flows – last 4 weeks

Figure 51. Cumulative fund flows into regional funds as a percentage of AUM

Figure 52. Cumulative fund flows into regional equity ETFs as a percentage of AUM

Technical Indicators

Figure 57. Sentix Sentiment Index vs SX5E

Figure 59. Speculative positions in S&P500 futures contracts

Performance

Earnings

Table 26. IBES Consensus EPS Sector Forecasts — MSCI Europe

Table 27. IBES Consensus EPS Country Forecasts

Valuations

Table 29. IBES Consensus P/E and 12-Month Forward Dividend Yields — Country Forecasts

Economic, Interest Rate and Exchange Rate Outlook

Table 32. 10-Year Government Bond Yield Forecasts

Sector, Regional and Asset Class Allocations

Table 34. J.P. Morgan Equity Strategy — European Sector Allocation

Table 35. J.P. Morgan Equity Strategy — Global Regional Allocation

Table 36. J.P. Morgan Equity Strategy — European Regional Allocation

Table 37. J.P. Morgan Equity Strategy — Asset Class Allocation

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