By Jamie Chisholm
A more critical view of AI winners is sensible, says Nomura analyst
Broadcom stock has pulled back sharply like other momentum plays of 2025
Equity investors hoping for a seasonal spurt to new record highs have had to be patient. The S&amp;P 500 SPX has been twitching around within just a 180 range since the start of December, fractionally shy of fresh peaks.
One reason why bullish sentiment has been constrained is that strong heavyweight performers this year have stumbled of late - think Nvidia (NVDA), Microsoft (MSFT) and Broadcom (AVGO), for example.
Smaller market-cap erstwhile popular plays - such as CoreWeave (CRWV), energy and quantum stocks - have also found the going tough in recent weeks.
The fear among some investors is that this reversal in what many refer to as momentum stocks is a harbinger of a more sustained negative shift in market sentiment, regarding AI plays in particular, that bodes ill for 2026.
But Charlie McElligott, Nomura's cross-asset strategist, says a pullback in the momentum factor is normal this time of year, and &#34;there is still blood left in this AI stone.&#34;
&#34;The AI phase shift into 'adulthood' has moved into 'tumultuous' territory in recent weeks, with the market transitioning away from the early CAPEX spend euphoria, and now, maturing into a much more rigorous assessment of the investing theme,&#34; McElligott writes in a note shared with MarketWatch late Thursday.
He says that investors' more critical assessment of the AI sector's balance sheets, potential returns on investment, likely margin compression and the problem of energy bottlenecks, is a good thing.
However, McElligott reckons that this narrative of more skeptical AI thinking has been used to explain what in essence is simply old fashioned profit-taking after a strong run. And this &#34;snowball[ed] into something sloppier, especially with the amount of leverage in the trade,&#34; he adds.
Indeed, McElligott provides the table below to show that its common for the momentum factor to experience a drawdown in December, averaging a pullback of 1.1% since 1995.
&#34;This 'leadership reversal' phenomenon is a well-known feature this time of year as well, with December being the worst median-month for '1Y [1 year] Momentum' factor over the past 30 years,&#34; he writes.
And since  2016, the median momentum retreat is 2.7%, &#34;as traders pre-position for the 'January Effect' phenomenon and prior 'laggards' rally,&#34; McElligott adds.
In other words, previous winners are being used as a source of funds by investors wishing to broaden their portfolios to gain exposure to stocks likely to benefit from a better economy in 2026.
And to reinforce the point that selling of some of 2025's winners does not mean investors have given up on AI-linked stock plays, McElligott  notes option market action during Wednesday's equity sell-off.
Source: Nomura
The trades show a willingness to sell further downside for the AI proxies represented - Broadcom, Eaton (ETN), Alphabet (GOOGL), Nvidia and Vistra (VST).
Selling puts suggests the dealer does not expect the stocks to fall much more, &#34;which matters from an 'inflection' perspective,&#34; says  McElligott.
The markets
U.S. stock-index futures (ES00) (YM00) (NQ00) are higher as benchmark Treasury yields BX:TMUBMUSD10Y rise. The dollar index DXY is up, while oil prices (CL.1) down and gold futures (GC00) are trading around $4,360 an ounce.
The buzz
U.S. economic data due Friday includes existing home sales  for November and the final reading of December consumer sentiment, both released at 10:00 a.m. Eastern.
Nike shares (NKE) are sharply lower after the sneaker giant delivered results and forecast lower sales and margins for its third quarter.
OpenAI is aiming to raise $100 billion in a financing round that values the ChatGPT owner at about $830 billion, according to the Wall Street Journal.
Oracle shares (ORCL) are jumping on report the company will be involved in TikTok's U.S. joint venture.
The Bank of Japan raised interest rates by 25 basis points to 0.75%, the highest in 30 years. Yields on Japan's 10-year government bonds BX:TMBMKJP-10Y broke above 2.0% to the highest level since 1999.
Best of the web
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The chart
Investors still betting that the Japanese yen (USDJPY) will continue to be weak versus the U.S. dollar, and thus a good source of cheap trading funds, may like to consider the chart from Jim Bianco, president of Bianco Research. It shows that Japan's core inflation is now above that of the U.S. for the first time since 1977. After raising interest rates to the highest in 30-years on Friday, analysts think the Bank of Japan is likely to continue increasing borrowing costs and thus scrunching further the U.S./Japan rate differential.
Top tickers
Here were the most active stock-market tickers on MarketWatch as of 6 a.m. Eastern.
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-Jamie Chisholm
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(END) Dow Jones Newswires
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<p>Nomura's strategist Charlie McElligott suggests that concerns over the recent pullback in AI momentum stocks like Nvidia, Microsoft, and Broadcom are misplaced. He argues that the pullback is typical for December and reflects profit-taking rather than a negative shift in sentiment. McElligott highlights that investors are critically assessing AI sector investments, which is positive. Despite recent sell-offs, options market activity indicates confidence in AI stocks' resilience. The analysis suggests that the current market behavior is part of a broader portfolio strategy rather than a loss of faith in AI investments.</p>

- Investors are exercising caution as strong performers like Broadcom and Nvidia see pullbacks, attributed to seasonal trends and profit-taking leading into 2026.  
- Nomura's strategist, Charlie McElligott, emphasizes that this critical reassessment of the AI sector's fundamentals is normal and does not signify a complete loss of confidence in AI stocks.  
- Current trends indicate a shift in investor strategies, with some reallocating funds from 2025 winners to broaden their portfolio amidst concerns regarding economic performance and market sentiment.

Here's why concerns about the wobble in stock-market darlings may be misplaced