The extreme velocity of price appreciation in certain semiconductor stocks could lead to sharp, disorienting corrections.
Analyst expectations for continued profit margin expansion are at all-time highs, creating a risk if these forecasts are not met.
A significant portion of AI-related CapEx is being driven by private companies like Anthropic and OpenAI, whose financial health is not transparent to public market investors.
Opportunities Identified
The broadening earnings recovery presents opportunities in the equal-weighted S&P 500 and small-cap stocks, which have underperformed mega-caps.
Semiconductors may still be attractive as their valuation multiples have compressed due to earnings growing faster than stock prices.
Low unit labor costs provide a strong fundamental tailwind for continued corporate profit margin expansion across most sectors.