Trivariate Research backs AI stocks as sector selloff tests credit concerns

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Trivariate backs AI stocks

Highlights

Trivariate Research’s Parker maintains a bullish outlook on AI stocks, viewing the AI spending cycle as only halfway complete despite credit concerns.
Since May 2023, AI-linked stocks have significantly outperformed, with Nvidia up 647%, SMH up 335%, and the technology sector rising 147%.
In October 2026, SMH fell 11%, the S&P 500 technology sector dropped 4.8%, and Nvidia declined over 5% as investors react to borrowing fears.

Long-term cycle still supports AI spending

As reported by CNBC, Parker told clients he remains bullish on the AI trade despite growing concern over credit conditions tied to the sector. He said most experts view AI as a 10-year cycle, and that datacenter buildouts could last even longer in some cases.

Parker wrote that even if the cycle ultimately lasts seven to eight years, the market is only about halfway through it now. In his view, selling AI-exposed securities this early would be premature.

He also said the earnings benefit from AI adoption has not yet been fully realized. Parker noted that only 15% of companies were discussing these issues at the start of the year, and that fewer than half of the top 500 U.S. equities are discussing them today, suggesting labor-related productivity gains still lie ahead rather than behind the market.

October pullback tests market conviction

AI-linked stocks have been a major force behind the broader bull market in recent years. Since May 2023, the S&P 500 has risen 84%, while the technology sector has climbed 147%, semiconductor stocks have quadrupled, the VanEck Semiconductor ETF, SMH, has gained 335%, and Nvidia has surged 647%.

October 2026 is proving more difficult for the trade. While the S&P 500 is up slightly this month, SMH has fallen 11%, the S&P 500 technology sector has dropped 4.8%, and Nvidia has declined more than 5% as investors reduce exposure to AI names amid borrowing fears.

Even so, Parker says the strongest part of the bull case may still be ahead. He argues that S&P 500 earnings can remain above trend if AI-driven labor productivity begins to show up more clearly in company results.

Our earlier coverage of the S&P 500’s push toward 8,000 explained how the index’s rally had become heavily reliant on AI-linked megacaps, even as higher oil prices, elevated Treasury yields, and political uncertainty raised the bar for third-quarter earnings. We also highlighted growing worries about market breadth and concentration risk, alongside added scrutiny of financing and credit exposure tied to large AI buildouts.

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