The AI boom is giving momentum investors one of their strongest runs in decades, with MSCI Inc. 
MSCI‘s global momentum gauge outperforming the MSCI All Country World Index by 17 percentage points since the end of March. Bloomberg-compiled data going back to 1991 shows the gauge is on track for its strongest two-month outperformance on record, as the world’s hottest stocks keep powering higher despite concerns that the Iran war could possibly slow growth.
The trade still has fuel. Bulls argue that the AI frenzy could continue pulling money into the market’s biggest winners, while steady inflows into tech have made momentum the dominant global style this year. Hao Hong, chief investment officer at Lotus Asset Management, said the momentum story may persist for another few months, with significant volatility along the way, before it possibly reaches a climax.
But the setup is getting more crowded, and that could make the market more vulnerable if the backdrop shifts. Hong warned that if inflation expectations continue rising, the Federal Reserve may need to make a bigger-than-expected move, which could stall the momentum trade. Jun Bei Liu of Ten Cap Investment said bubbles are forming in several areas and warned that the AI-led basket has ignored macro developments, while slower US growth is likely to affect earnings over the next six months.