UBS Strategist Warns AI Stocks Face Valuation Risks
Michel Lerner of UBS warns that AI stocks are overvalued, while Nuveen strategist Laura Cooper argues the investment theme remains intact.
Financial strategists are divided over the sustainability of the artificial intelligence trade as higher interest rates pressure expensive valuations. Michel Lerner, head of HOLT at UBS, warned on Tuesday that AI stocks are beginning to underperform because they have been treated as exempt from basic corporate finance principles.
Lerner argues that record-high cash flow returns on investment are unlikely to be sustained, particularly as hyperscaler capital expenditure could triple to $1.28 trillion by 2028. He suggests this spending may dilute returns and create funding risks. To mitigate these vulnerabilities, Lerner recommends diversifying into value stocks in financials and industrials, low-volatility sectors like healthcare and consumer staples, and U.K. equities.
In contrast, Laura Cooper, a global investment strategist at Nuveen, maintains that the AI investment cycle remains constructive. Cooper points to strong revenue visibility from hyperscaler backlogs as evidence that the buildout is continuing despite increased market volatility.
