JPMorgan's Quinsee Says Investors Should Look Beyond Big Tech for Strong Returns

Key Concepts

• Diversification: The strategy of spreading investments across different styles (Value vs. Growth) and regions (US vs. International) to mitigate risk.
• AI Tech Trade: The concentrated market movement driven by hyperscaler investment and frontier models.
• Earnings Momentum: The rate of change in corporate earnings; a key indicator for market health.
• Valuation Multiples: Metrics like Price-to-Earnings (P/E), Price-to-Book, and Price-to-Sales used to assess if stocks are expensive.
• Hyperscalers: Large cloud computing companies (e.g., Amazon, Google, Microsoft) driving massive infrastructure investment in AI.
• Fixed Income Competition: The shift in capital allocation as bond yields return to "normal" levels, creating competition for equity flows.

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1. Market Diversification Strategies

The speaker emphasizes that investors should diversify not just by "where" (geography) but by "what" (investment style).

• Style Diversification: Moving beyond growth-heavy tech stocks into "Value" strategies.
• Geographic Diversification: Looking beyond the US market to regions like South Korea or international markets.
• Evidence: International value strategies have yielded ~40% returns over the last 12 months and ~25% compound returns over the last three years, outperforming the S&P 500 while maintaining low exposure (3–4%) to the "Magnificent 7" tech stocks.

2. Analyzing the AI Tech Trade

Despite concerns regarding retail investor interest (e.g., "buying the dip"), the speaker argues that the tech trade is supported by strong fundamentals.

• Warning Signs: The speaker identifies three specific indicators to watch for a potential market top:
  1. High Valuations: Price-to-book and price-to-sales multiples are elevated.
  2. Volatility: Increased daily price swings in both directions.
  3. Earnings Revisions: A peak in earnings momentum (which has not yet occurred).
• Current Status: While tech valuations are high, many earnings multiples remain in the single digits. The "AI boom" is currently fueled by genuine infrastructure spending by hyperscalers, which has not yet shown signs of slowing.

3. Corporate Performance vs. Macro Factors

The speaker argues that investment success is currently driven by bottom-up corporate stories rather than macro-currency (FX) trends.

• Case Studies:
  • European Banks: Transitioned from "uninvestable" to solid performers, yielding 5–6x returns over several years.
  • Energy Sector: Earnings have boomed following a period of being written off by the market.
• Earnings Breakdown: While US earnings are projected to be up mid-20% this year, this is heavily skewed by AI/Tech. Excluding Tech and Energy, the rest of the market (the "493") is growing at a more modest 8%.

4. The Role of Bonds and Asset Allocation

The speaker addresses the "untethered" nature of the bond market, noting that yields in Japan, Germany, and the UK have reached levels not seen in decades.

• Competition for Flows: As bond yields move from "extremely low" (post-GFC) to "normal," they are beginning to compete with equities for capital. However, the speaker maintains that we are not yet in a stage where bonds are a direct threat to equity dominance.
• Historical Context: The speaker references the 1987 market crash as a reminder that bond yields can suddenly become the primary driver of equity market sentiment.

5. Forward-Looking Expectations

The speaker suggests that investors should temper their expectations for future returns.

• Projected Returns: Moving from the recent 20%+ annual returns to a more sustainable 8–10% range.
• Earnings Growth: Analysts project 10–11% earnings growth for S&P 500 companies over the next five years.
• Multiple Expansion: The speaker warns against expecting further multiple expansion, noting that the S&P 500 is currently trading at ~21x earnings, while a more reasonable valuation would be 18–19x.

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Synthesis and Conclusion

The core takeaway is that while the AI-driven tech trade remains fundamentally supported by earnings, the market is currently experiencing high concentration risk. Investors are advised to look toward international value strategies and non-tech sectors to diversify their portfolios. As the market transitions from a period of extreme multiple expansion to one driven primarily by earnings growth, investors should prepare for more moderate, single-digit returns and remain vigilant regarding volatility and earnings momentum shifts.