Citi analysts believe now is the time to “buy into the next leg of the Artificial Intelligence trade,” suggesting an expansion of focus beyond the United States and across the value chain.
Citi delineates AI-related stocks into three key segments of the value chain: Enablers, Creators, and Users, with the former two groups attracting the majority of investor attention recently thanks to their significant returns.
However, the Wall Street giant believes that Users and several international companies have been unduly neglected.
“We believe investors should broaden their thematic exposure as Users now positively contribute to returns, and earnings growth becomes more distributed,” analysts said in a note.
They have introduced two new investment baskets designed to serve as foundational components for gaining exposure to AI “as both Growth and Value investors are currently faced” with investing dilemmas, analysts commented.
Citi notes that growth stock investors, having reaped substantial gains from leading performers, might seek to either secure profits to mitigate risk or reduce holdings to adhere to concentration guidelines, all while maintaining interest in AI.
On the flip side, those cautious of potential overvaluation in soaring stocks, reminiscent of the 2022 downturn in lesser-quality US names, still acknowledge AI's long-term promise.
For both scenarios, Citi's “Artificial Intelligence-at-a-Reasonable-Price” basket can serve as either a comprehensive or targeted investment strategy "and skews more towards NAM Creators and Enablers," analysts highlighted.
Similarly, value investors, facing challenges in integrating typically growth-centric AI stocks due to their high valuations, can find solace. Citi's “Artificial Intelligence Value” basket aims to spotlight investments where AI potential meets improving business fundamentals, offering a solution for those in search of value within the AI theme.
"The Value screen sets a lower P/E cutoff and focuses on margin expansion, tilting more to Users and European exposure," analysts said.