JPMorgan trading desk: The "sell first, ask later" wave of AI-driven selling in the US stock market is about to end; it's time to bottom-fish software stocks.

JPMorgan trading desk: The "sell first, ask later" wave of AI-driven selling in the US stock market is about to end; it's time to bottom-fish software stocks.

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In recent weeks, the core trading logic of the US stock market has been simplified into a suffocating narrative—“AI Replacement Risk”. This extreme fear of being “eliminated by AI” has triggered violent turbulence in the financial and industrial sectors, causing money to flood into semiconductors, while indiscriminately selling off software—“sell first, ask later”.

However, the latest report from JPMorgan’s trading desk on February 17 believes that this extreme emotional release is nearing its end. The team is positioning itself contrarily in wrongly punished software stocks and assets “immune to AI disruption” to seize the upcoming rebound:

“Although the short-term market pattern remains unchanged, the AI replacement narrative is nearing its end, meaning the bottom-fishing window for big tech stocks has opened.”

The market has overreacted across multiple industries

JPMorgan’s positioning intelligence team observes that currently, the semiconductor sector’s position crowding has reached +4 standard deviations (+4z), while the software sector has plunged to -3.5 standard deviations (-3.5z)—the difference in positions between the two sectors has hit historic extremes.

Since the start of the year, the return on long semiconductors and short software trades has reached about 34.9%. This split originates from investors’ linear thinking: AI computing power is the only winner, and traditional software will be completely disrupted.

In its latest report, JPMorgan’s analysts across industries have deconstructed this AI selloff in depth, concluding that the market is clearly overreacting in many areas:

1. Software Industry: An “Undeniable Negative Logic”

Analyst Mark Murphy points out that the current dilemma is that software companies find it difficult to “prove their innocence”—that is, to demonstrate AI will not disrupt them in the coming years. Although sector growth has slowed due to macroeconomic headwinds, considering valuations have declined sharply, he recommends investors adopt a “barbell strategy”: on the one hand, allocate top software companies with robust free cash flow (FCF); on the other hand, avoid targets with excessively high valuations.

2. Wealth Management & Life Sciences: Profit Expansion vs. Short-Term Risks

Last week, major banking stocks (JP2LBK Index) fell by 6%, and M&A brokers plummeted by 7%. However, fundamental feedback was quite the opposite: loan growth was good, M&A and IPO pipelines strong. Analyst Rob O’Dwyer believes the market underestimates the value of “human relationships” in wealth management. In fact, for wealth management firms, AI is more likely a tool to improve profit margins, not a killer of client relationships.

In the life sciences tools sector, the risks are more clearly defined. CRO companies (like MEDP) have already acknowledged that pharmaceutical clients internally leveraging AI to boost productivity may reduce their demand for outsourced services. This could be one of the few sectors where the AI negative logic actually holds.

3. Logistics & Transportation: Panic of AI “Disintermediation”

The logistics sector has been a disaster zone for recent AI panic. After competitor Algorhythm Holdings announced its AI platform SemiCab could significantly improve freight scheduling efficiency (one operator can manage 2,000 orders, four times a traditional broker), US freight giant CHRW’s share price plunged 25%, dragging global peers like DSV and DHL down about 10%.

JPMorgan analyst Alexia Dogani is skeptical. She notes that freight brokerage involves complex integration of physical infrastructure, and the current level of digitization is very low. While AI can improve efficiency, it will not cross physical barriers to achieve complete “disintermediation” in the short term.

4. Japanese Market: AI will not replace outsourcing in the short term

The same logic applies to the Japanese IT services market.

Analyst Matthew Henderson points out that large Japanese companies are highly reliant on system integrators (SIers) and face severe talent shortages. In this structural deadlock, AI will not replace outsourcing but rather become a tool to alleviate talent shortages and boost SIers’ profit margins.

Bottom-fishing software stocks?

JPMorgan’s trading team writes in its report that although the short-term market structure remains unchanged, the AI replacement narrative is nearing its end, meaning the bottom-fishing window for big tech stocks has opened. The team’s specific trading strategies are as follows:

  1. Core themes: Maintain optimism about AI/TMT, global growth restart, international market opportunities, and the US dollar depreciation trade.
  2. Hedge risks: Recommend going long on crude oil and energy stocks to hedge geopolitical risks; buy volatility (Vol); short momentum factor.
  3. Own operations: The trading desk is executing a long strategy, going long on a basket of stocks “severely mispriced and immune to AI disruption”

 

Risk warnings and disclaimerThe market has risks; investments need caution. This article does not constitute personal investment advice and does not take into account individual user’s special investment goals, financial situation, or needs. Users should consider whether any opinions, viewpoints, or conclusions in this article suit their particular circumstances. Investing accordingly is at your own risk. ```