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Investing.com -- Wolfe Research strategists say fears of an AI bubble burst remain misplaced for now, arguing that the sector is better positioned than most if the broader U.S. economy hits a soft patch.
The research firm’s strategists led by Chris Senyek expect Technology and Communication Services names to navigate a temporary slowdown, and views weakness as an opportunity rather than a warning. It is staying constructive on the group but is holding off on more aggressive buying until clearer signals emerge.
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Along these lines, Wolfe says it is waiting for either an upside catalyst from Nvidia’s (NASDAQ:NVDA) earnings or a deeper reset in technicals before leaning in.
That view comes as Federal Reserve Governor Christopher Waller signaled support for another rate cut at the December meeting, citing growing concern over the labor market after months of weakening job data.
Waller said he is not worried about inflation reaccelerating and sees little incoming data that would alter his stance in the coming weeks. His comments highlight a widening split inside the Fed over how quickly to ease policy, with several regional presidents warning that additional cuts could reignite inflation.
Markets remain divided ahead of the Dec. 9–10 decision following back-to-back cuts in September and October.
For AI investors, Wolfe’s focus on technical indicators reflects a desire for confirmation before adding more exposure. The firm points to the relative strength index drifting toward oversold territory, a move that would signal capitulation rather than noise.
Another indicator that they are closely watching is the number of new one-month lows across leading AI stocks that would suggest broader exhaustion and a reset in positioning.
Wolfe also cites an inverted CBOE Volatility Index curve as a sign of market stress; a reversal there would indicate that volatility fears have peaked and risk appetite is stabilizing.
Finally, all eyes are on Nvidia’s results later today, a potential swing factor for the entire AI complex.
Sell-side analysts expect Q3 EPS of $1.25 on revenue of $55.03 billion and Q4 EPS of $1.43 on $61.8 billion. But buy-side “whisper” expectations run higher, with Mizuho’s Jordan Klein flagging figures closer to $57 billion for Q3 and $64 billion for Q4.
For Wolfe, a meaningful beat would be the catalyst needed to turn selective buying into something more assertive. Together, these measures would offer cleaner entry points after a choppy period.