Is the AI bull market still intact? After the tech stocks suffered a significant drop, Wall Street analysts believe it is a healthy pullback!

After experiencing the most intense semiconductor sector sell-off since 2020, mainstream Wall Street institutions have not changed their bullish outlook on the US stock market. On the contrary, many investment banks, including Citigroup, Morgan Stanley, and Goldman Sachs, have recently raised their targets for the S&P 500 index, betting that profit growth driven by artificial intelligence (AI) will continue to support the US stock market's push to new highs. Last Friday, US technology stocks experienced a "Black Friday". This sell-off, triggered by disappointing performance guidance from AI chip leader Broadcom and strong non-farm payroll data, led to a single-day drop of more than 10% in the Philadelphia Semiconductor Index, marking the largest decline since the pandemic impact in 2020. The Nasdaq index recorded one of its largest single-day point drops in history, losing up to $1.8 trillion in market value in a single day. The fear of the crash continued to spread over the weekend and into the Asia-Pacific markets on Monday. The South Korean KOSPI index plummeted over 8% on Monday morning, triggering a circuit breaker and suspending trading for 20 minutes in the Korean stock market. The Nikkei 225 index fell over 3%, with SoftBank Group dropping over 9%. This is a global repricing of AI assets, occurring a week before SpaceX's record-breaking IPO, ten days before Jerome Powell's first Federal Reserve policy meeting, and amidst a "Wall Street's most divisive bull market" taking shape. However, at the center of this storm, two of Wall Street's most influential stock strategistsMorgan Stanley's Mike Wilson and Citigroup's Scott Chronertboth gave the same assessment: the pullback is healthy, and the bull market is far from over. Morgan Stanley's Wilson: Pullback is "inevitable and benign", maintains 8000 target At a time when market confidence is on the brink of collapse, Mike Wilson's voice stands out. As one of the most accurate strategists on Wall Street in recent years, he gave a clear and firm assessment in his research report on Monday: the sell-off driven by positions last Friday was a "healthy adjustment", and if the bull market is to continue until the end of the year, "a pullback is inevitable and ultimately benign". Wilson is not blindly optimistic. He accurately analyzed the nature of the pullback: "This pullback is mainly led by the semiconductor and storage chip sectors, which have seen significant gains since the beginning of the year, while hedge funds and leveraged exchange-traded funds are overly concentrated in these stocks." In other words, the core drive of this decline is not the deterioration of fundamentals, but a natural liquidation of extremely crowded positions. Data shows that as of last week, hedge funds' net exposure in the semiconductor sector was at the historical 98th percentile. Once market sentiment changes marginally, this extreme position structure can amplify downside momentum. The Philadelphia Semiconductor Index saw a cumulative decline of 12% last Thursday and Friday. Wilson's optimistic assessment is based on a more fundamental foundation: the continued strength of corporate earnings and the expanding coverage of growth. He believes that the AI infrastructure investment chain is penetrating downstream. The outperformance of chip stocks will gradually spread to software, cybersecurity, data center operations, and even traditional industrial AI applications, forming a more diversified earnings support. Wilson maintains his year-end target price for the S&P 500 index at 8000 points, still about 8% above the current level. He has also preliminarily set a mid-2027 target price of 8300 points. Looking back at Wilson's market performance in the early stages of the Iran war outbreakwhen the market plunged in panic, he insisted on a positive outlook on corporate earnings prospects, which was later proven accuratethis time, he stands on the side of "anti-panic" once again. Citigroup's Chronert: AI super cycle only in "mid-game", earnings are the core support If Wilson provided the assessment that "the bull market can continue", Citigroup strategist Scott Chronert provided the most detailed earnings data support to date for this assessment. In a weekend when Wall Street had largely abandoned expectations of rate cuts in 2026, Citigroup went against the trend by raising its year-end target for the S&P 500 index from 7700 points to 8100 points, becoming one of the highest target price investment banks among mainstream Wall Street institutions. More importantly, this raise is "not an expansion of valuation multiples, but a strong acceleration of corporate earnings capability". Chronert significantly increased the earnings expectations for the S&P 500 index in 2026from $320 per share set in December 2025 to $350 per share, and for the first time presented a preliminary forecast of $400 per share in 2027. In its first-quarter report, Citigroup pointed out that actual earnings for the S&P 500 exceeded market consensus by about 13.4%this level of outperformance has only been seen historically in the early stages of recovery after an economic recession, and there is currently no recession background. Citigroup openly admitted, "This has not been seen in forty years." Citigroup explicitly refused to define the current environment as a "traditional cycle", but characterized it as a "one-time capital expenditure super cycle", and believed that it is currently in the "middle segment". This means: the momentum of earnings growth has not yet peaked, but the phase of the fastest growth may have passed; the future rise of the index will increasingly rely on earnings growth itself, rather than valuation expansion. Citigroup's optimism comes with a crucial warning. The strategist acknowledges that the investment logic of AI infrastructure construction has been fully identified by the market, which is also the root cause of the "asymmetric expansion of downside risksthe more well-known the theme, the faster the market price reversal when a deceleration signal appears". Chronert bluntly pointed out that whether the growth driven by AI can continue beyond 2027 is still a key question, and warned that "a slowdown (or even decline) in spending growth will eventually lead to market aftereffects. But this has not yet manifested". Goldman Sachs monitoring nine indicators: market overheating has not reached bubble extreme levels In its latest research report, Goldman Sachs pointed out that while some overheating signs have indeed appeared, several key indicators show that the current market still has a considerable gap from the extreme levels seen in historical bubble periods. The report stated: "Speculative frenzy itself is not a precise timing tool, but it is indeed one of the typical characteristics of the peak stage of past high-valued, highly concentrated bull markets." Goldman's strategists Ben Snider and his team developed a monitoring framework in a report covering four dimensionsprice performance, trading activity, investor sentiment, and corporate expectationscomprising nine indicators. The research shows that the median ranking of these indicators is currently at the 86th percentile since 1995; by comparison, this indicator reached the 100th percentile during the dot-com bubble period and the 95th percentile during the market peak in 2021. The report specifically pointed out that market breadth has significantly narrowed, meaning that most of the gains are being driven by relatively fewer stocks. However, Goldman emphasized that the current market concentration is still lower than during the late 1990s tech bubble. Unlike previous speculative rallies, the recent rise in US stocks has been primarily driven by improving profit expectations. So far this year, the market's widespread expectations for S&P 500 earnings per share have increased by 16%, exceeding the index's 8% price increase. Goldman expects strong earnings growth to continue, predicting that S&P 500 earnings per share will reach $340 in 2026, a 24% increase from 2025. Regarding trading activity, Goldman's speculative trading indicator has risen in recent months, but remains below the levels seen during the dot-com bubble period and the market surge in 2021. The indicator mainly tracks trading activity in loss-making companies, low-priced stocks, and stocks with high valuation multiples. The trading activity of high-valuation stocks with an Enterprise Value-to-Sales ratio of over 10 times is nearing the highest level in decades, second only to the dot-com bubble period in 2000. At the same time, the median short position of S&P 500 index constituents as a percentage of their market value is 3.2%, the highest level since the 2008 financial crisis, far higher than the levels seen in 2000 and during the market peak in 2021. Goldman believes that this indicates that investors' actual positions are more cautious than many sentiment indicators suggest. The next three "time bombs" In this narrative of "the bull market is not over", the next 30 days will face three major tests. CPI data and rate hike path. The US May CPI data, expected to show a year-on-year increase of up to 4.3%, will be released on Wednesday. This will be the highest level since 2023, driven by the Iran war pushing up energy prices. If inflation data heats up more than expected, the 10-year US Treasury yield may further rise, putting more pressure on growth stock valuations. Goldman Sachs has completely abandoned expectations of rate cuts this year, raising the probability of rate hikes from 10% to 20%; BNP Paribas even predicts that the Fed will raise rates three times starting from December. Powell's first FOMC meeting. On June 17th, the new Fed Chairman Kevin Warsh will preside over his first rate decision meeting. The market has largely digested the decision not to raise rates in June, but the bigger suspense lies in the tone Warsh will set during the meetingwill it be hawkish signals or maintaining the current neutral stance? Warsh's preference for "trimmed mean inflation" indicators, a tendency to abolish dot plots, and other behavioral patterns will all undergo comprehensive scrutiny by the market at his first appearance. SpaceX's record-breaking IPO. SpaceX, expected to be listed on June 12th with a fundraising scale of up to $750-862 billion, will set a record for the largest IPO in history. This unprecedented fund "siphoning" has already partially transmitted to the technology stock funding side. Last Friday's partial downturn was believed to be related to investors withdrawing funds ahead of subscribing to SpaceX. The pace of liquidity returning after the IPO's landing and the subsequent fund rebalancing will continue to affect the short-term performance of technology stocks.