Market not pricing in the magnitude and duration of AI buildout remaining: Citi's Scott Chronert

Ajouté : 2026-04-29

[00:00:00]Let's ask Scott Croner. He's the US equity strategist at City. Scott, it's it's great to have you here. It's quietly bond yields sort of the tenure has been quietly creeping higher, stubbornly high, I'd say. Add in the price of Brent. That's going to a new four-year high today. Higher now than any point since the Iran war broke out.

[00:00:18]>> Um, do you think that we've been too sanguin about how well the equity markets and the economy have done up to this point?

[00:00:25]>> Um, Kelly, it's a really good question.

[00:00:27]Great being on and good seeing you. What what I would say is that I don't think we're being too sanguin. I don't know also that there's been evidence to support the contention that this is going to be a fundamental issue certainly with the Q1 reporting period.

[00:00:42]However, we need to be just aware that, you know, with roughly, call it half of the S&P 500 being influenced probably more by the AI narrative than traditional macro indicators, it's no surprise that you're you're seeing a lot of that growth expectation play through here. So I think what we're keeping our eye on quite honestly is sort of a a repeat of the 22 uh narrative which we've discussed in the past whereby you had that oil spike back in the first part of 22 but it led to a fairly mixed second half of the year. So the point here being is that Q1 earnings are probably going to bit probably be a bit too early to feel the real burden of higher oil prices. But as we move forward from here into the second quarter and second half of the year, we have to be aware that that issue is out there.

[00:01:30]>> Am I correct, Scott, in reading that you are a little concerned about market valuations here.

[00:01:36]>> So the way I like to describe it is I'm not one to say buy or sell on valuations alone. I think the valuation construct always reflects earnings growth expectations and and earnings drivers in my view tend to be the most most relevant aspect to how equity markets trade. But what we're looking at right now in our work is an implied five-year earnings growth kagger of about 12% which is extremely high by historic standards. So again doesn't mean sell but what it does mean is the burden of proof on fundamentals to deliver and follow through is exceptionally high versus history. And so that's an awareness that you need to have going into tonight's reports and as we go through the the remainder of the uh in in particular the tech part of the market.

[00:02:23]>> Yeah, I was going to ask about that. We just spoke with Sati. He said for tonight the focus is and he'd be a buyer of all four of these names. He said focus on capex cash flow advertising spend obviously uh we'll get that from Google. He said you know and it's obvious but it will be super important for the semis. I mean these are the companies that are ultimately you know ordering the capex that is powering this whole move. So do you have a point of view on the mag 7 part of the S&P as it relates to valuation?

[00:02:50]>> Yeah abs I I what I would say is that what's happened over the course of this year is that uh in terms of traditional valuation metrics and even PEG ratios the uh the semiconductor part of the market has actually gotten very attractive. So the point here being that you've had stronger earnings growth than you actually have had price action. So the PEG ratios have actually come in.

[00:03:14]>> So we think the the picks and shovels play on the AI buildout in our view continues to be probably the highest conviction component of this with a hardware um uh area of of tech also being additive to that playbook.

[00:03:29]>> That's fascinating. So I I just want to say that again.

[00:03:32]As strong as the equity performance has been, the growth, the actual earnings and now the projections is so much stronger that the valuations look better now for semis than they have. I mean, that's unbelievable.

[00:03:45]>> I mean, the the the semi multiples literally when we're going into Q2, we talked about this. They had the the Ford PES are corrected 10 multiple turns from six months prior going back to last fall. So I think the point here being is that what we don't think the market has priced in fully yet is the magnitude and duration that the AI buildout probably still has ahead. Um and so that does tie back to the hyperscalers and and how aggressive they'll be with their capex projections and we just have to be aware that there's going to be some sensitivity to that input.

[00:04:20]>> But by and large when we look at the semicomponent yeah it's had a pretty good run. Yes, it's probably due for a pause or some digestion of these gains, but probably the highest level of uh of conviction in terms of the fundamental outlook from our purge.