Company Interview / AI euphoria meets bond market reality

Key points:

AI theme shifting from hyperscalers to software, with (NYSE:CRM) and (NYSE:NOW) preferred over (NYSE:SNOW)Search for resilient, cash-generative software names amid higher-for-longer interest ratesSelective emerging markets exposure, with Brazil favoured and Korea partially trimmed

Vesna Peroska from Morningstar states there is a growing divergence between cautious bond markets and bullish equities, driven largely by the ongoing enthusiasm for artificial intelligence. Peroska notes bond markets focus increasingly on inflation risk and fiscal slippage, reflected in rising UK yields, while equity investors continue to pour capital into AI-related infrastructure, adding to inflation pressures and complicating the task for central banks.

Peroska argues the AI trade is broadening beyond the initial “Mag 7” and hyperscalers to the software layer, where she sees better value. She cites SNOW, CRM (Salesforce) and NOW (ServiceNow) as key examples, pointing to recent results that, in her view, challenge the idea that AI will “kill software”. However, Peroska regards Snowflake’s strong revenue and customer metrics as less compelling due to weak earnings and margins, preferring established cash-generative names such as Salesforce, with ongoing revenue growth, margin expansion and a robust cash flow history that may support resilience if rates stay higher for longer.

In emerging markets, Peroska highlights Brazil as an area of opportunity given attractive valuations and commodity exposure, while stressing elevated risk. She reports profit-taking in Korea, trimming positions in SK Hynix and Samsung, and rotating capital into selected software names for more balanced AI exposure.