JPMorgan Flags Crowd Risk in AI and Momentum Trades, Suggests Blue Chips as Safer Bet
JPMorgan’s latest research warns that the surge into high-beta, momentum-driven stocks—like Palantir (PLTR), Coinbase (COIN), and Nvidia (NVDA)—has reached a historic peak. The level of crowding is at the "100th percentile," marking the most extreme positioning in three decades. This intense concentration raises red flags not just for these segments but for the broader market, signaling rising complacency in the short term.
Investors appear overly confident that the AI-driven rally will continue unabated. For instance, Tesla (TSLA) trades at more than 160 times forward earnings, compared to about 22 times for the S&P 500. The pace of crowding in high-beta and speculative growth stocks has been unprecedented, climbing from the 25th to the 100th percentile in just three months—the fastest jump since JPMorgan began tracking this data.
Market Sentiment and Risk Indicators
Short interest has dropped sharply, indicating fewer investors are hedging against downside risks. This marks the third episode of extreme overcrowding this year. Earlier in January, investors flocked to AI-linked megacaps. By April, the focus shifted to low-volatility stocks amid tariff concerns. Now, speculative tech and meme-adjacent stocks are in favor, which may expose the market to a sharper pullback.
The previous low-volatility crowding that started in April unwound within three months—the fastest unwind on record. This suggests that similar rapid shifts could occur again.
Why Blue Chips Could Outperform Next
JPMorgan’s strategists recommend rotating into lower-volatility, blue-chip stocks that have lagged recently. These names have underperformed the market by 19% since April but could gain if speculative bets unwind. Low volatility stocks offer a more attractive risk/reward profile, especially with tariff deadlines looming on August 1, unfavorable seasonal trends, and aggressive investor positioning.
- Coca Cola (KO)
- Allegion (ALLE)
- Intercontinental Exchange (ICE)
- CME Group (CME)
- CBOE Global Markets (CBOE)
Shifting back to these safer, blue-chip names could mitigate downside risk as market dynamics evolve.
Wall Street Echoes the Warning
Apollo Global Management’s chief economist, Torsten Sløk, also cautions against overvalued tech stocks. His data shows the price-to-earnings ratios of the top 10 S&P 500 companies—many AI leaders like Meta (META) and Nvidia—have exceeded levels last seen during the 1999 dot-com bubble.
Sløk acknowledges AI’s transformative potential but questions the wisdom of buying tech stocks at any valuation. This skepticism is growing among market watchers, suggesting a more cautious approach is warranted.
What This Means for Investors
The current market optimism is driven by expectations of steady economic growth, easing inflation, and a more accommodative Federal Reserve. However, this “Goldilocks” outlook may prove fragile. Crowded AI trades could reverse quickly, and non-AI speculative stocks face even greater risk of sharp pullbacks.
For professionals managing risk and portfolio allocation, considering a move toward established, lower-volatility stocks may offer a more balanced approach in this environment.
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