Morgan Stanley’s Wilson: The AI theme is ‘overcooked’ and needs a new catalyst

The stock market needs a new catalyst for the artificial intelligence theme rally to resume, said Mike Wilson, chief US equity strategist at Morgan Stanley.

In a Bloomberg interview, Wilson said that bidding on AI’s short-term potential was premature.

The Philadelphia Semiconductor Index (SOX) reached a low in April to almost 4,300 and is down 3% from the past six months, although currently up 12% year-to-date.

Other AI-themed ETFs are also struggling:

• Amplify AI Powered Equity ETF (AIEQ) is down 0.58% year-to-date
• iShares Future AI & Tech ETF (ARTY) is down 6.33% year-to-date
• Invesco AI and Next Gen Software ETF (IGPT) is down 5.30% from six months ago
• Global X Artificial Intelligence & Technology ETF (AIQ) is up 9.36% year-to-date, but had a low early in August to below 32.

Nvidia (NVDA) is up 126.24% year-to-date, but has had several slumps this year, the latest one reaching level 100.

Wilson said that the enthusiasm over AI “has lost a bit of its luster” although “it doesn’t mean it’s over.”

But he argued that “we just got overcooked on the whole AI theme” as the equity market switched from quality growth to quality defensives.

He recommended the utility sector (XLU), consumer staples (XLP), and health care (XLV).