Wolfe Research: Market Rotation Indicates AI Trading Reset Rather Than Reversal

LootboxPhobia · 2026-02-20T03:15:47+00:00

Wolfe Research analysis indicates that recent AI stock fluctuations reflect market expectation adjustments rather than changes in the economic structure. Although software stocks have been weak, long-term adoption is still in the early stages, and economic growth is expected to exceed expectations, leading AI-related stocks to regain strength.

LootboxPhobia

2026-02-20 03:15:47

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Investing.com - Wolfe Research states that recent volatility in AI-related stocks reflects a recalibration of expectations rather than a structural shift in the economy.

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Analyst Stephanie Roth wrote in a client report, “The market is sending mixed signals about AI,” noting that sentiment in the software sector has weakened significantly, bond yields have declined, but the broader stock market “remains resilient.”

According to Wolfe Research, sector leadership is “rotating rather than collapsing,” indicating that the re-pricing of AI-related risks “may have already exceeded what the current economic environment can support.”

Roth added that the long-term adoption cycle is still in its early stages, especially among large corporations, with usage rates “approaching 35%” based on Census Bureau survey data.

The firm expects economic growth to surpass expectations, with bond yields rising again in the coming months, supporting cyclical stocks, and then AI-driven leadership will “reassert itself.”

Despite recent weakness, Wolfe Research emphasizes that since the launch of ChatGPT, the stock prices of large-scale cloud service providers have increased by 164%, compared to a 78% rise in the S&P 500, while software stocks have lagged with a 55% increase.

“Interestingly, large-scale cloud providers have been punished by investors due to heavy capital expenditures, while software stocks are under pressure over concerns that AI may ultimately be too disruptive,” Roth pointed out.

Wolfe Research believes that neither of these poses a macroeconomic threat, estimating that domestic AI investment will account for about 1.8% of GDP by 2026, “which is meaningful but far from a primary driver of the economy.”

Roth added that economic momentum is improving, with the company’s proprietary index beginning to turn upward, and this trend is expected to continue.

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