Is it time to broaden the AI play? - Citi Outlook

The moment to "buy into the next leg of the Artificial Intelligence trade," according to Citi analysts, is now. They recommend focusing attention across the value chain and outside of the US.

Citi categorises AI-related equities into three main value chain segments: Enablers, Creators, and Users. Due to their notable gains, the former two categories have recently drawn the majority of investor interest.

However, according to the Wall Street behemoth, Users and several foreign businesses have received inappropriate scrutiny.

As users now positively contribute to returns and profit growth becomes more spread, experts believe investors should extend their thematic exposure, according to a note from analysts.

Analysts noted that they have unveiled two new investment baskets intended to act as fundamental elements for acquiring exposure to AI "as both Growth and Value investors are currently faced" with investment conundrums.

According to Citi, investors in growth stocks who have made significant gains from top performers may decide to stay on their AI investments less in order to comply with concentration restrictions or secure profits in order to decrease risk.

Conversely, people wary of possible overvaluation in surging equities, who remember the US companies of worse quality during the 2022 meltdown, still see AI's long-term potential.

Value investors can take comfort in this, as their high valuations make it difficult for them to integrate normally growth-centric AI firms. Citi's "Artificial Intelligence Value" basket is designed to provide investors looking for value in the AI space with a solution by highlighting assets where AI promise meets improving business fundamentals.

"The Value screen sets a lower P/E cutoff and focuses on margin expansion, tilting more to Users and European exposure," Citi stated.

(Sources: investing.com, reuters.com)