ARTIFICIAL INTELIGENCE AND GLOBAL STOCK MARKETS?
October 14, 2025 10:03 am Leave your thoughts14.10.2025 Ever since the Liberation Day sell-off in April stock markets have climbed steadily. They have been propelled by optimism around Artificial Intelligence. Below we look at the outlook for stock markets for the rest of the year.
Despite worries about a slowdown in the US economy, as the Trump tariffs feed through into the real economy, the US stock market has powered higher. Positive sentiment around the growth potential of Artificial Intelligence (AI) has pushed technology stocks and the US stock market to new highs.
Whilst AI has had success in disrupting a number of industries, such as coding and advertising, the revenue it generates is still only modest. For example, AI only makes up 5% of Microsoft’s revenue while it only generates USD 10 bn for Open AI. So, markets will look carefully at the growth rate of revenues generated by AI applications. Markets will also focus on the growth rates generated by the Cloud businesses of the big US technology firms. This is because many of the new AI applications are accessed via the Cloud. As long as these growth rates remain impressive then markets are likely to remain optimistic about the large sums being invested in AI infrastructure.
Excitement around AI has seen a premium valuation attached to the US stock market. It now trades on 23 times next year’s profits compared to a long-run average of around 18 times. At this stage in the cycle diversification is the important watch word. Asian and European stock market valuations are much closer to their long-term average valuations. As such they provide useful diversification from the US market.
For information only. Investors should seek professional advice for their own circumstances before making an investment.
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This post was written by Robin