HSBC: US stock valuations remain reasonable, not fully reflecting AI potential

HSBC Global Chief Investment Officer Willem Sels said U.S. stocks are not as expensive as they appear, with valuations not fully reflecting the scale of the AI-driven productivity and earnings boom. Sels noted the price-to-earnings (P/E) gap between U.S. and European stocks has narrowed, but valuation multiples have not yet fully priced in the structural AI investment cycle. Chipmakers in particular are trading at a discount, with even 2027 earnings growth forecasts coming under question. Sels believes this skepticism will reverse as companies provide more concrete evidence via orders and guidance. Overall bullish on equities, Sels said stocks have repeatedly shaken off volatile headwinds, thanks to stronger-than-expected economic and corporate resilience, as well as proactive responses from governments and firms to shocks rather than passive waiting. Companies adopting AI are posting stronger earnings, revenue, and profit growth than non-adopters, especially in the U.S., proving the technology is delivering tangible productivity gains. The biggest risk to equities is a sharp rise in bond yields, with the 10-year U.S. Treasury yield around 5% viewed as a potential trigger for volatility. The market has "long been spoiled by low bond volatility," but strong earnings tailwinds make it hard for stocks not to keep rising.