Yoo Dong-won: AI Cycle Not Over Yet… U.S. Growth Stocks Attractive

Yu Dong-won, Head of Yuanta Securities' Global Asset Allocation Department (Managing Director), stated that interpreting the 'slowdown in AI investment' as the end of the cycle is incorrect. Instead, it could improve investment quality and prolong the cycle.

He noted that during the dot-com bubble, excessive investment led to plummeting margins and reduced profits. In contrast, current investments are supported by rising revenue and profitability, highlighting a key difference.

Yoo emphasized that U.S. growth stocks have become more attractive due to recent corrections. The S&P 500's 12-month forward P/E ratio has dropped to around 19x, nearing the 10-year average, while corporate earnings outlook remains solid. He described the market as having strong fundamentals but weak sentiment, suggesting it's time to reconsider Nasdaq and growth stocks.

Regarding high interest rates, Yoo believes they are not severe enough to trigger a financial crisis. With U.S. real economic growth and inflation in check, long-term rates around 5% per annum remain within reasonable bounds, supported by sustained credit expansion.

He also assessed that the impact of unwinding yen carry trades would be limited. Japanese rate hikes were largely anticipated, and speculative short positions against the yen have halved compared to 2024 levels, reducing potential shock.

Yoo identified November's midterms as a key market turning point. Historically, markets underperform in Q3 but rebound strongly in Q4 during midterm years. While this year's rate hikes may prolong corrections, he expects renewed strength post-November.

He highlighted optical communication as a promising sector, noting that while copper cables suffice for inter-chip connections, 'scale-out' and 'scale-across' data center links require optical technology due to bandwidth limitations.

For retail investors, Yoo advised focusing on shifts in investment logic rather than short-term price fluctuations. He stressed that selling decisions should be based on changes in fundamental reasoning, not mere price movements.