Here’s what is really driving tech stocks — and it’s not AI, says Deutsche Bank

The stock market is looking chipper again as bond yields slide on hopes the Federal Reserve is done raising interest rates. A well-received earnings report from Apple after Thursday’s closing bell could reinforce the latest rally in big tech stocks.

Still, some investors and market observers are concerned that much of the gains in the tech sector this year have been caused by over-exuberance regarding AI. The inference is that such stocks may be vulnerable to a waning of the AI narrative.

Fear not, because according to Galina Pozdnyakova and Luke Templeman, analysts at Deutsche Bank, AI’s impact on the 2023 tech rally has been overstated.

They accept that since the launch of ChatGPT a year ago, AI chip maker Nvidia
for example, has seen its shares surge about 140%, and the Nasdaq-100
has gained around 20%. Yet they argue that other factors suggest that AI optimism has not been the main driver of tech markets.

“It is true that tech has somewhat decoupled from the broader market this year, but it is less clear that AI had a major role in this,” they say, and provide the chart below that shows a measure of abnormal returns for the tech sector compared with the rest of the market.

Source: Deutsche Bank

“There is a visible outperformance wave in the first months of the year when tech benefited from a risk-on mood as well as in the aftermath of large drawdowns in 2022,” they say. “Later on, big tech rallied on the back of perceived haven status amid the SVB selloff, followed by another advance around an upbeat forecast from Nvidia in late May.”

So, what are the other non-AI factors that have driven tech stocks? Rising real yields has been an important narrative since the summer, with moves within the sector becoming more synchronized.

“While, early on, ChatGPT propelled semiconductor stocks and left the software industry firms behind, now, various industries across the TMT sector seem to be converging. That points to a waning effect on markets of generative AI and indicates investors are refocusing on non-AI factors in their stock decisions,” say the Deutsche Bank analysts.

Another way to observe AI’s waning influence on the market is to split out semiconductor stocks from software and services firms. The chart below shows an initial jump in semiconductor stocks — mainly driven by Nvidia –after ChatGPT’s launch in November last year.

Source: Deutsche Bank

This was followed by some smaller market oscillations related to earnings of semiconductor companies, alongside the a selloff in those software stocks considered vulnerable to the use of ChatGPT.

“Nevertheless, the wedge between the two industry groups has stabilized over the last few months, showing few new AI-driven shocks. Moreover, semiconductor stocks came under pressure as investors tempered expectations,” say Pozdnyakova and Templeman.

The Deutsche Bank analysts also looked at corporate transcripts and found there was much AI talk, but little positive share price action.

The mentions of AI-related words in company documents have sharply accelerated this year as management try to pitch revenue and/or cost benefits from the technology, they note.

However, stock returns have a negative correlation to the intensity of AI chatter. Taking a sample of 77 Russell 300 stocks, the analysts found that the correlation between total returns since the first quarter and the intensity of AI talk in fourth quarter 2023 to first quarter 2023 transcripts was minus 29%.

Source: Deutsche Bank

“In part, this is because AI was more in focus for smaller and less profitable firms. In other words, corporate AI enthusiasm is sticky, unlike investor attitudes which seem to be more discerning,” they say.

Pozdnyakova and Templeman reckon that big gains in AI, in the near term, will likely come from within the private markets as venture capital picks the next winners.

“Indeed, beyond a handful of stocks, there have been few clear winners or losers from the buzz around generative AI. At present, some of the major non-semiconductor players are still figuring out the product,” they conclude.


U.S. stock-index futures



are higher as benchmark Treasury yields
slide. The dollar
is weaker, while oil prices

gain and gold

is firmer.

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The buzz

the world’s most valuable listed company, will release its results after the market closes on Thursday. Shares in the iPhone maker are up about 1% in premarket trading and up 34% for the year.

Shares of Roku Inc.

are jumping nearly 20% in Thursday’s premarket trading after the company easily topped revenue expectations for the third quarter and noted “a solid rebound in video ads.”

PayPals stock

is rallying 7% after the company topped expectations with its latest earnings and named a new chief financial officer.

Starbucks shares

are adding 7% after the coffee store chain posted better-than-expected earnings for its fiscal fourth quarter.

Amusement park companies Cedar Fair

and Six Flags

have agreed to a merger of equals valued at about $8 billion including debt.

U.S. economic data due on Thursday includes the weekly initial jobless claims alongside third quarter productivity and unit-labor costs at 8:30 a.m. Eastern. Factory orders for September will be released at 10 a.m..

The Bank of England left interest rates unchanged at 5.25%, but the pound

gained 0.5% to $1.2220 after Governor Andrew Bailey suggested he was in no hurry to consider cutting rates.

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The chart

A strong dollar can provide headwinds for the U.S. stock market, so investors may wish to take note of this chart of the dollar index
from Michael Kramer at Mott Capital Management.

“It looks like a bull flag on the dollar, and that would mean that the dollar index goes higher. But that means that the data will have to support the dollar moving higher, and there will be plenty of data coming the rest of this week to support this potentially,” says Kramer.

Source: Mott Capital Management

Top tickers

Here were the most active stock-market tickers on MarketWatch as of 6 a.m. Eastern.


Security name




AMC Entertainment


Palantir Technologies




Advanced Micro Devices

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