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Artificial Intelligence boosts stock market performance
What will cause the stock market or the equity markets to fall is not so much a macroeconomic context or theme, but rather some disappointment in this AI trade”, said Catarina Castro.
"The S&P 500 trades at a PER (price-to-earnings ratio) multiple of 22 times, but it is important to separate the sectors that make up the index, as the technology sector trades at historically high levels. The main factor for this is the exposure to the Artificial Intelligence (AI) sector", says Pedro Baldaia, Head of Equities at Banco Carregosa, during the roundtable on International Trends and Perspectives, held at the 13th edition of the Grand Conference ‘The Future of Financial Markets’, organized by Negócios and Banco Carregosa, with the support of ISCTE Business School.
"AI is the underlying theme that has led the financial market and the share class to capitalize on these 22 times multiples", adds Catarina Castro, economist and market analyst.
For this expert, most other sectors trade with a PER below the median of the last 10 years. "There is clearly a bifurcation in terms of sectors, which is important to highlight. We are in an economic moment that, conceptually, should be favorable for the growth of corporate results, since in the United States there is resilient economic growth and a downward trajectory of interest rates.
The magnificent seven
"As long as there is the prospect that AI can bring new gains in scale, productivity and profitability to companies, the stock market and the Stock Exchange, in general, will move at a different pace and rhythm than the macroeconomy", said Catarina Castro. She explained that, with GDPs rising between 2% and 3%, there is an expectation that the stock market, which is at historic highs, is already discounting the gains in efficiency, productivity and higher profitability that the disruption of AI may or may not actually prove.
Pedro Baldaia detailed his analysis of the seven large technology companies, which represent around 30% of the S&P 500. "These companies have a "They have a huge impact on the index's performance and are all at high multiples, due to their exposure to the theme of Artificial Intelligence." Nvidia, the world's largest chip producer, a near monopoly, is key to the creation of AI tools. Next in line are Microsoft, Meta, Amazon and Google, which are investing heavily in production capacity in their data centers, which has dragged down other industries. "This has had a significant impact on the resilience of economic growth in the United States over the last few quarters," Pedro Baldaia stressed.
The specter of a decline
Two major users also entered his analysis. The main one, Apple, with the iPhone, had been stagnant for five or six years in terms of global sales volumes. Suddenly, its price rose, driven by the hope that a cycle of mobile phone renewal would occur due to the artificial intelligence tools integrated into the devices. In turn, Tesla "is more of a dream, as it will allegedly present a series of products related to the theme of AI in the near future," Pedro Baldaia concluded.
"Artificial intelligence can be a launching pad for increasing the economy's productivity and for improving the performance of these stocks."Pedro BaldaiaHead of Equity at Banco Carregosa
This analyst at Banco Carregosa believes that "AI can be a launching pad for increasing the economy's productivity and for improving the performance of these stocks." However, he warns that there is a risk that, within 18 to 24 months, Microsoft or Amazon will justify reducing their investment in AI, arguing that "people are using AI tools, but not to the extent that was estimated." For Pedro Baldaia, "if this were to happen and were communicated to the market, these seven companies and others would be impacted."