AI chip selloff driven by positioning, not bubble: Mowat

Adrian Mowat, a veteran emerging-market strategist, argues the recent selloff in AI chip stocks is a pullback within a bull trend. Fears of a bubble are overdone, he told ETMarkets. The move was driven by positioning unwinds, not a change in fundamentals.

Hyperscaler capital spending is still accelerating. Chip supply constraints support pricing power for at least another year. Enterprise adoption of AI tools remains early, and lead times for advanced chips stay long. Data-center equipment orders have not slowed, Mowat said, pushing back against the narrative that AI infrastructure buildout peaked with the first wave of large language models.

Infosys and Wipro have fallen about 30% from their 2024 highs on concerns that AI spending will cannibalize traditional outsourcing. If chip demand stays strong, the pipeline for cloud migration and AI implementation services should hold up. AlphaScala's score for Infosys sits at 57, a Moderate label. Wipro scores 46, a Mixed reading. The gap reflects Infosys's stronger positioning in AI consulting and its higher-margin digital business.

Mowat acknowledged that the pace of AI chip gains could slow if export controls tighten or if hyperscalers pivot spending toward internal ASICs. Those risks are already priced, he argued. Valuations in the chip group have compressed to 25-30x forward earnings from above 40x late last year. Revenue growth for leaders is still above 50%, making that multiple defensible.

For Indian IT, the link to AI chips is indirect. A sustained chip rally lifts risk appetite for the tech sector. It also signals that enterprise clients are likely to maintain or increase budgets for generative AI projects. The next scheduled event that could shift the narrative is Nvidia's earnings later this month.

Nvidia reports in late May. The print will provide a fresh data point on demand from hyperscalers and enterprise clients.