Artificial Intelligence Fuel Boosts Global Momentum Stocks to Record-Breaking Performance

Momentum Investors Reap Best Returns in Decades Amid AI Boom

The AI boom has given momentum investors their best return in decades, with the world's hottest stocks powering ahead despite worries over potentially slower growth due to the Iran war. According to data compiled by Bloomberg, MSCI Inc.'s global momentum gauge has beaten the MSCI All Country World Index by 17 percentage points since the end of March, on track for its strongest two-month outperformance on record, dating back to 1991.

The AI frenzy has been luring money into the market's biggest winners, with continuous inflows into tech stocks making momentum this year's dominant global style. Investors have been brushing aside economic risks and chasing an expanding wave of AI winners, but some caution that the scale of the outperformance is a warning sign. The longer investors crowd into the same stocks, the more exposed markets are to a sudden reversal if hot inflation causes the Federal Reserve to tighten policy or if earnings weaken.

| MSCI Inc.'s Global Momentum Gauge vs. MSCI All Country World Index | | --- | --- | | MSCI Inc.'s Global Momentum Gauge | MSCI All Country World Index | | 17 percentage points | 0 percentage points | | Strongest two-month outperformance on record | | | Since the end of March | | | Data compiled by Bloomberg, back to 1991 | |

Read also: TrueFan AI Secures $10 Million in Funding Led by Baring PE India and Z3Partners

Bulls say the AI story will persist for another few months, with significant volatility in between, until it finally sees a climax. However, if inflation expectations continue to run higher, then the Fed would have to make a bigger-than-expected move, and that will stall the momentum trade. According to Jun Bei Liu, co-founder and lead portfolio manager at hedge fund Ten Cap Investment, the AI-led basket has ignored all macro development, and it's risky with bubbles forming in a number of areas.

A slowdown in US growth is likely to impact earnings in the next six months, which could further exacerbate the situation. An end to the war would further boost sentiment near term, but the longer-term implications of the AI boom remain uncertain.