(Bloomberg) — US stocks aren’t as expensive as they look, according to HSBC’s Willem Sels, who says valuations still fail to capture the scale of the AI-driven productivity and earnings boom. <\/p>\n
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Sels noted that the price-to-earnings gap with Europe has narrowed, and that multiples do not yet fully reflect what he described as a structural investment cycle with AI. The S&P 500 trades at about 19 times forward earnings, compared with a multiple of nearly 15 times for Europe’s Stoxx 600. <\/p>\n
“The US is not expensive. The markets are questioning the sustainability of earnings growth, but that’s in the price because that gap has closed,” Sels, global chief investment officer at HSBC Private Bank and Premier Wealth, said in a Bloomberg Television interview. <\/p>\n
He added that chipmakers in particular are being discounted by investors who doubt even 2027 earnings growth projections \u2014 a skepticism he believes will reverse as companies provide more concrete proof through order books and guidance. <\/p>\n
Sels is broadly bullish on stocks, saying equity markets have repeatedly shaken off headline-driven volatility because economies and businesses have proven “more resilient than people thought,” with governments and companies acting proactively on shocks rather than remaining passive. <\/p>\n
He pointed to stronger earnings, revenue and margin growth at companies adopting AI versus those that aren’t, particularly in the US, as evidence that the technology is already delivering real productivity gains. <\/p>\n
The single biggest risk to equities, Sels said, is a sharp rise in bond yields, identifying a 10-year US Treasury yield around 5% as a potential trigger for volatility. He acknowledged that markets have been “spoiled by low bond volatility for a long time,” but maintained that a strong earnings tailwind makes it very hard for equity markets to not continue rising. <\/p>\n
The bond market has been back in the driving seat for stock investors recently. Yields have surged as the escalating US-Iran conflict has reignited oil prices and inflation concerns. Hawkish signals from the Federal Reserve and the European Central Bank, fiscal worries and intensifying competition for capital amid the AI-capex boom have added to the pressure. <\/p>\n
JPMorgan Chase & Co.’s Grace Peters said last week that a 10-year Treasury yield at 5% would be psychologically significant, potentially triggering a knee-jerk reaction in stocks. Barclays Plc’s Emmanuel Cau similarly said a move to 5% would make investors much more nervous about the implications for equities. <\/p>\n
On Europe, Sels said the region is less vulnerable to an energy shock than previously feared, citing sector diversification, and deliberate resilience-building by both governments and businesses. He described Europe as a good diversifier for investors heavily weighted toward the US AI trade, and noted that a recent rotation from technology into financials has benefited European equity markets. <\/p>\n
Produced with the assistance of Bloomberg AI. <\/p>\n
Most Read from Bloomberg Businessweek <\/p>\n
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