One big beautiful AI (trade)

Coming off a stellar corporate earnings season, the market was confident about the prospect of a continued rally of tech stocks into the rest of the year. Analysts have said that the whole market is now one big AI trade. To be fair, the current AI trade is dominating the tech stocks’ volatility, and investors entering this year are almost eyeing perfection in corporate earnings. The S&P 500 hit a record high in May as renewed hopes for the US-Iran deal drove investors to continue focusing on earnings and growth.

But misses do occur, and with elevated valuation expectations, the AI trade has become fragile and sensitive to any surprises, whether that is macro geopolitics or changing views from Fed…