He added that chip pricing has had a bigger influence on capital expenditure efficiency. “Chip pricing has been more impactful on capex and how much they can build with every dollar of capex they’re spending,” he said.
Over the longer term, energy demand from data centres could become a constraint if prices remain elevated for an extended period.
He said equities are rebounding as geopolitical stress eases, driven by repositioning rather than fundamentals, with growth stocks expected to lead due to structural drivers.
For the full interview, watch the accompanying video
Citi maintains a year-end target of 7,700 for the S&P 500, implying further upside, but near-term market positioning could remain sensitive to geopolitical developments and earnings trends.
These are edited excerpts from the interview.Q: Are you bullish on the US market? Your S&P target for year-end is 7700, which means a 10% upside from current levels. But do you get the sense that, just for the near term, investors are getting ahead of themselves? There is some complacency with the kind of rebound that we’ve seen in the month of April, because the blockade is still on, and as of now, it’s only a truce. The war hasn’t really ended, with both sides not yet bridging the gaps between the asks.A: I think markets are finally getting past, potentially the worst of the worst, at least for the news flow around the conflict in Iran. I would say it’s a really aggressive repositioning move. It feels like a big-time beta rally, but structurally, I would say at least on NASDAQ outperformance, and what we’re seeing on the growth side, that actually makes a lot of sense. That’s a way to play macro defence to us, at least in the equity markets, because that is tied to secular trends, not the cyclical economy.
If you look longer term, the one thing that has changed is that the broadening thesis—that you’re going to get earnings growth from more parts of the US market and globally—is going to be a little bit more difficult. I think when fundamentals kick in, you might see a narrower market going forward.
Q: Software stocks have been really hammered, pretty hard, right? We got a bit of a very sharp move, actually. I think it was earlier this week, on Monday. US software stocks jumped as a group. What’s happening with that basket, and what’s the sentiment like around those names?A: It’s just coming off really low levels. Sentiment is really poor. And honestly, the fundamental story, longer term, is still challenged. Like, look, we are underweight software. We do like technology broadly. We prefer semiconductors over software. On the software front, you’ve actually seen peaking quality. There’s a lot of really high-quality software names out there, good margins, good ROEs, but it’s coming off really high levels, and people see that as structurally challenged.
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Again, to my first point, when we start talking about fundamentals again and get past the macro, the secular story probably makes more sense in buying semis and AI buildout, not necessarily software from here.
Q: In terms of global equity market positioning, I understand that you prefer some of these developed markets—the US and UK are still top draws for you—while some of the emerging markets have turned a little bit neutral. Case in point being India. Tell us your preference with regard to global markets, developed markets versus emerging markets, and also within the emerging market basket, where does India come, and what’s the trigger to turn overweight?A: So I have got to give our global colleagues a lot of credit here. We work really closely with them. We actually just went back overweight the US in the past week or so. That is not a long-lasting position for us. We’ve been bullish fundamentally; tactically, it was neutral for a while, just upgraded again. It’s a way to play relative defence when geopolitical uncertainty lingers.
On emerging markets, we kind of took that down. I would say broadly in EM, you do get some of the AI trade. We have a little bit more conviction in that in the US than EM, and within EM, we are still kind of assessing the situation. We think, at least tactically, Latin America feels more insulated than Asia, at least from a price input perspective, and the effect of higher oil prices, even though they have come down off peak.
And India—look, that’s a neutral for us still. We think earnings downgrades have been happening. There’s more to come, but in a relative sense, it’s still not as cyclical and as concerning as other parts of Asia.
Q: Is the oil shock, the rise in oil prices, a threat to the AI-led boom, to your mind, because that’s been driving the Asian markets, and we know all these data centres are guzzlers of energy, and also because of the conflict? Do you think the broad AI capex—led by the $650 billion that the top four tech companies in the US were planning to build out this year—is going to be on track, or does it get derailed?A: I think near term, the story is actually—when you think about inflation and the concerns around AI buildout—it’s memory pricing and compute, so you’re still building that out. The longer-term headwind is energy and how much you need to power data centres.
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So yes, if energy prices stay high for an extremely long period of time, yes, you’re right. But I think the near-term narrative around the secular is still in the buildout. We are still building out AI infrastructure; energy doesn’t dent that in the near term. Chip pricing has been more impactful on capex, and how much they can build with every dollar of capex they’re spending.
Q: Going back to some of the same trades that worked before the war broke out, you kind of go back to that same, similar setup.A: Yeah, it actually feels a lot like what we were talking about in 2025 again. Earnings growth is going to be a little bit more focused on tech and growth themes. The revisions on the cyclical side, outside of energy—because again, higher prices mean higher earnings expectations there—but outside of that, you get worried about consumers. For example, are you going to get upgrades there in industrials that are outside of the AI complex? So, to us, it starts to feel like the earnings story of last year and a little bit more of what was working going into this.
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