“The major American and Chinese players have no interest in holding back the development of AI.”

After several months of euphoria, the AI sector is now experiencing some turbulence. However, the warnings recently issued by Anthropic have not prevented technology stocks from continuing to rise. Nicolas Bickel analyses this apparent contradiction and offers his take on the markets, covering the prospects for a stronger dollar, rising US interest rates, a preference for credit and renewed interest in healthcare.

Despite the scepticism shown towards certain areas of artificial intelligence, stocks such as Intel and AMD are rising significantly. How do you interpret this divergence within the AI sector itself?

Yes, there has been a great deal of divergence within the tech sector since the start of the year, for example between semiconductors, which have risen sharply, and software stocks, which have not. Since mid-July, however, we have seen a strong recovery in software stocks and underperformance in certain segments of the semiconductor sector.

At the start of the year, investors mainly favoured companies capable of generating cash flows quickly, even as investment needs linked to AI were skyrocketing and supply remained limited for certain key components. Semiconductor stocks then underwent several periods of correction, first due to questions about investments by hyperscalers, and subsequently due to concerns about the risks associated with the development of AI.

One might well wonder whether the warnings about the risks associated with AI are not simply a public relations exercise. The major US and Chinese players have no interest in slowing down the development of this technology. At the same time, cybersecurity stocks have risen sharply, whilst traditional software publishers remain under pressure. The very strong results recently published by hyperscalers and semiconductor firms have finally given new impetus to the AI theme.

What trajectory do you see for the dollar over the coming months?

Our base-case scenario is for the dollar to appreciate slightly against the euro and the Swiss franc. In terms of monetary policy, there is currently no major divergence between the US and Europe that would, on its own, justify a significant move in the foreign exchange markets. On the other hand, the US economy continues to benefit from higher growth than in Europe, a very dynamic capital market and a relatively abundant and inexpensive energy supply.

The Fed’s credibility in its commitment to maintaining the 2 per cent inflation target also provides support. Of course, foreign demand for US debt could be weaker. One need only look to Japan, where investors can secure higher domestic returns. Nevertheless, the fundamentals of the US economy, the depth of its capital markets and the Fed’s credibility lead us to anticipate a slight appreciation of the dollar.

What are your expectations for the Xi Jinping–Trump summit on 24 September and the trade talks that could reshuffle the deck in emerging markets?

Above all, we try to distinguish the information that has a real impact on the markets and separate it from the media noise. Since Donald Trump’s election, we have chosen to focus on the fundamentals rather than reacting to every announcement.

We do not expect any real breakthrough on the geopolitical front. However, discussions on technology, AI and trade will be worth following closely. They may help to maintain a dialogue between the two powers, reduce the risk of a further trade escalation and, above all, provide greater clarity for the markets.

That said, the rivalry between China and the US will not disappear as a result. Mechanisms for cooperation could nevertheless emerge on certain issues, such as the risks associated with AI models. In the short term, however, we do not believe the summit will have a major impact on the markets.

The US 10-year yield has breached 5 per cent for the first time since 2023, but equities have only fallen slightly. How do you explain their resilience?

Historically, equity markets have tended to react fairly well to the early stages of rate rises when these are accompanied by strong economic growth. As long as growth and productivity remain robust, rising interest rates do not necessarily suffice to break companies’ earnings momentum.

This is precisely what we are seeing today. Investment in technology remains significant and US growth remains very robust. The impact of higher interest rates on valuations, through the discounting of future earnings, is for the time being largely offset by the expected growth in earnings.

The main risk would be a further acceleration in inflation, which would force central banks to adopt an even more restrictive policy. However, this is not our base case scenario. Instead, we envisage a moderate rate-hiking cycle, of a smaller scale compared to that of 2022.

What bond allocation do you favour for the end of the year, in terms of duration, credit quality and market segments?

We continue to favour short duration and to underweight sovereign bonds, both in Europe and the US. Rising debt, interest rates and deficits could fuel a vicious circle, whilst foreign demand for US sovereign debt appears to be weaker.

At 5 per cent, we therefore do not regard 10-year Treasuries as a particularly attractive entry point. Instead, we favour high-quality corporate credit or ‘crossover’ bonds, as well as certain subordinated financial bonds and corporate hybrids.

I would point out that credit fundamentals remain solid, with high interest coverage ratios and an improvement in the average quality of the indices. We therefore maintain a preference for credit over sovereign debt and favour a relatively short duration.

The healthcare sector appears to be benefiting from the pullback in tech, though we wouldn’t go so far as to call it a genuine shift. How do you explain this dynamic?

Indeed, it is difficult to speak of a shift. Rather, we view healthcare as a defensive sector that can act as a buffer when technology stocks correct. The sector also remains relatively attractively valued, but it still lacks a sufficiently powerful catalyst to trigger a genuine phase of outperformance.

The main challenge lies in the pace of new drug approvals and the strength of the pipelines. Many companies are also facing the expiry of key patents. We therefore favour companies with limited exposure to these expiries and which are also capable of renewing their product portfolios.

Certain areas, such as obesity, cardiology, oncology and dementia, are benefiting from structural trends linked to an ageing population. However, not all companies are necessarily well-positioned to capitalise on these trends. The healthcare sector therefore remains attractive in a period of uncertainty, particularly for investors wishing to limit their exposure to risks linked to AI, but we do not yet see a genuine structural rotation in its favour.