Tech dominance as a driver of US exceptionalism is a double-edged sword: Barclays

Published 31/01/2025, 15:10
© Reuters.

Investing.com -- Barclays analysts warn that the dominance of Big Tech as the key driver of US exceptionalism comes with risks, as the recent volatility in AI stocks has shown. 

“DeepSeek bursting onto the scene this week has quite rightly caused a jolt to the collective group-think that Big Tech is a one-way trade,” they noted. 

The bank adds that stock reactions were largely explained by the varying loftiness of valuations/expectations, and the potential impact on each company’s business models.

While hyperscalers welcomed DeepSeek’s emergence as a catalyst for AI adoption, Barclays (LON:BARC) expects shifting capital expenditure priorities. 

“It is unlikely to alter the size of this year’s expected AI/Data centre capex spending plans… Further out, it may alter the shape of capex spending,” particularly in how funds are allocated between AI model training and inference.

Barclays believes this could lead to a shift in investor focus “more towards the adopters, and therefore productivity gainers from AI” rather than the hardware providers that have led the AI rally.

The AI shake-up has contributed to broader equity market shifts. “With AI hegemony starting to show some cracks and highly concentrated portfolios hit hard this week, we believe that investors may start to broaden out their allocation,” Barclays wrote. 

Their latest Who Owns What report suggests that this could reduce reliance on US tech and potentially provide Europe an opportunity to close the performance gap.

So far this year, Barclays said the AI-driven selloff has “led to a sharp de-concentration, allowing more stocks to outperform the benchmark compared to the last two years.” Barclays views this as “a rather healthy development” that may encourage a more diversified market environment.

 

Latest comments

Risk Disclosure: Trading in financial instruments and/or cryptocurrencies involves high risks including the risk of losing some, or all, of your investment amount, and may not be suitable for all investors. Prices of cryptocurrencies are extremely volatile and may be affected by external factors such as financial, regulatory or political events. Trading on margin increases the financial risks.
Before deciding to trade in financial instrument or cryptocurrencies you should be fully informed of the risks and costs associated with trading the financial markets, carefully consider your investment objectives, level of experience, and risk appetite, and seek professional advice where needed.
Fusion Media would like to remind you that the data contained in this website is not necessarily real-time nor accurate. The data and prices on the website are not necessarily provided by any market or exchange, but may be provided by market makers, and so prices may not be accurate and may differ from the actual price at any given market, meaning prices are indicative and not appropriate for trading purposes. Fusion Media and any provider of the data contained in this website will not accept liability for any loss or damage as a result of your trading, or your reliance on the information contained within this website.
It is prohibited to use, store, reproduce, display, modify, transmit or distribute the data contained in this website without the explicit prior written permission of Fusion Media and/or the data provider. All intellectual property rights are reserved by the providers and/or the exchange providing the data contained in this website.
Fusion Media may be compensated by the advertisers that appear on the website, based on your interaction with the advertisements or advertisers
© 2007-2025 - Fusion Media Limited. All Rights Reserved.