Analysts Bet on AI Outlook, Speculators are Shorting

Bloomberg macro strategist Simon White wrote this week that stock analysts and futures speculators are making completely opposite judgments about the same market.

On the side of analysts, the long-term earnings expectations for AI-related stocks remain high. Over the past few months, the net earnings upgrade has once surged to a 12-month peak. Although there has been some retreat recently, the pullback only occurred in the earnings expectations for next year, and the net upgrades for earnings in two and three years are still at high levels.

White pointed out that this phenomenon is quite unusual. Under normal circumstances, the more uncertain analysts are about near-term earnings, the more conservative they will be in judging long-term earnings. However, the "futurism" of technology analysts broke this conventional practice, and they are willing to set aside short-term doubts and instead bet on AI bringing an unprecedented long-term impact. White does not deny that AI will cause profound changes, but he believes it does not necessarily mean that current stock prices are justified.

On the side of speculators, the attitude is clearly cautious. Position report data shows that speculators continue to accumulate net short positions in all tracked stock index futures, including the mini S&P 500, Nasdaq 100, mini Russell 2000, mini Dow Jones, and mini S&P 400 mid-cap stock index. Among them, only the net position of the mini S&P 400 barely maintains a positive value, and the rest have turned into net short positions.

The divergence between the two types of participants is essentially a mismatch in the time dimension. Analysts bet their chips on the distant future, while speculators require the realization of real earnings within a shorter time window. White believes that the next few weeks will be a key time window to test whether the speculators' skepticism will work.