Key takeaways
- Barclays warns AI's strongest stock gains may be over
- Semiconductor ETF falls approximately 11% during October selloff
- Strategists favor profitable companies with more sustainable valuations
Barclays is warning that the most profitable phase of the artificial intelligence stock rally may already be behind investors, as semiconductor shares suffer a sharp October selloff and higher borrowing costs threaten expensive technology investments.
According to an October 16 Barclays strategy note, reported by Investing.com, European equity strategist Emmanuel Cau said investors should become more selective as the AI investment cycle matures.
The warning follows an approximately 11% decline in the iShares Semiconductor ETF (SOXX) since the beginning of October, reflecting renewed concerns about chip valuations, infrastructure spending and future earnings.
Barclays Says AI Stocks Face a More Selective Market
Barclays argues that investors can no longer assume every company exposed to artificial intelligence will benefit equally from the technology's expansion.
The bank's strategists believe the market is moving toward a more demanding phase in which financing requirements, competitive threats, regulation and revenue visibility will receive greater scrutiny.
Cau suggested that the strongest period of gains from the AI investment theme may be over, although Barclays has not abandoned its positive long-term view of major technology companies.
Instead, the bank favors businesses with established profitability, strong balance sheets and valuations supported by achievable earnings expectations.
The change follows significant pressure on semiconductor stocks. An earlier chip selloff erased approximately $1.64 trillion in market value over six trading sessions, affecting Nvidia, AMD and Micron.
The broader Nasdaq Composite also fell 4.5% during the week ending October 16, while the S&P 500 declined 1.9%, showing that technology-focused stocks experienced heavier selling than the overall market.
Why AI Debt and Rising Rates Are Worrying Investors
The latest selling pressure reflects more than disappointment with individual technology earnings.
Higher inflation and geopolitical tensions have complicated expectations for US interest rates, making it more expensive to finance long-term infrastructure projects.
AI companies are particularly exposed because building data centers requires substantial upfront investment in GPUs, power systems, networking equipment and construction.
The financial consequences are visible in the AI debt market, where rising credit-default-swap spreads have signaled increased concern about highly leveraged infrastructure providers.
CoreWeave has become a prominent example. Its stock decline exceeded 22% in one week as investors questioned whether future customer revenue would justify enormous financing commitments.
Meanwhile, Barclays recently downgraded Dell, Hewlett Packard Enterprise and NetApp, questioning whether some reported AI hardware growth reflects rising component prices rather than stronger underlying demand.
Which AI Stocks Could Hold Up Better?
Barclays' position does not amount to a forecast that artificial intelligence investment will collapse.
Its strategists still see opportunities in established technology companies, but believe investors should distinguish businesses already generating dependable earnings from those relying on distant profit expectations.
Recent $4.75 billion withdrawals from global technology funds suggest some investors are already reducing concentrated exposure.
Cau also noted that declining government bond yields could provide a counterbalance to equity weakness, since bonds may regain their effectiveness as defensive assets.
Europe represents another diversification possibility because its equity markets have less concentrated exposure to the largest US AI companies.
