BTIG warns: AI divergence has reached an "unsustainable" extreme; if semiconductors fall, the entire market will be vulnerable

BTIG Chief Market Technician Jonathan Krinsky says that the sharp fluctuations in AI-related stocks are causing extreme market divergence, which may be reaching an unsustainable level.

In a report, Krinsky focused on the stark contrast between winners and losers: CBRE.US stock plummeted 24% from its all-time high in two days, marking the largest weekly decline since the financial crisis; while data center REIT EQIX.US surged 11% in a single trading day, achieving one of the best single-day performances in nearly a decade.

The BTIG strategist warned that although these fluctuations are largely still beneath the surface and haven’t significantly impacted major indices, this situation could change soon.

“However, at some point, we start to worry that the weakness will overwhelm the strength, and the market will become fragile,” he said.

Krinsky pointed out that the S&P 500 is still struggling around the 7,000 level, and the second half of February typically represents a seasonally weaker period. Given the misalignment at the individual stock level, the coming weeks could be quite challenging.

The software sector is particularly concerning, the strategist noted. Krinsky further explained, “The software sector really needs to hold recent lows.” He emphasized that although the sector showed signs of a ‘capitulation sell-off’ last week, breaking below recent lows would indicate a deeper decline is brewing.

Perhaps most critically, the BTIG technical analyst warned that amid turbulence in other sectors, the semiconductor sector must continue to shoulder the load.

“Given the sharp declines in software stocks and other individual stocks, the market really needs the semiconductor sector to continue to take on the heavy lifting,” he said. Krinsky warned that if the semiconductor sector also weakens along with other sectors, “the index is likely to struggle to stabilize.”

Software ETFs:

INVESCO AI AND NEXT GEN SOFTWARE ETF (IGPT.US)

SPDR S&P SOFTWARE & SERVICES ETF (XSW.US)

ISHARES EXPANDED TECH-SOFTWARE SECTOR ETF (IGV.US)

Cloud Computing ETFs:

FIRST TRUST CLOUD COMPUTING ETF (SKYY.US)

WISDOMTREE CLOUD COMPUTING FUND (WCLD.US)

GLOBAL X CLOUD COMPUTING ETF (CLOU.US)

FIDELITY CLOUD COMPUTING ETF (FCLD.US)

PROSHARES ULTRA NASDAQ CLOUD COMPUTING ETF (SKYU.US)

PROSHARES SHORT NASDAQ CLOUD COMPUTING ETF (CLOD.US)

Semiconductor ETFs:

VANECK SEMICONDUCTOR ETF (SMH.US)

ISHARES SEMICONDUCTOR ETF (SOXX.US)

DIREXION DAILY SEMICONDUCTORS BULL 3X SHARES (SOXL.US)

INVESCO SEMICONDUCTOR ETF (PSI.US)

PROSHARES ULTRA SEMICONDUCTORS (USD.US)

PROSHARES SHORT SEMICONDUCTORS (SSG.US)

Artificial Intelligence/Robotics ETFs:

GLOBAL X ARTIFICIAL INTELLIGENCE & TECHNOLOGY ETF (AIQ.US)

GLOBAL X ROBOTICS & ARTIFICIAL INTELLIGENCE ETF (BOTZ.US)

ALPS DISRUPTIVE TECHNOLOGIES ETF (DTEC.US)

WISDOMTREE ARTIFICIAL INTELLIGENCE AND INNOVATION ETF (WTAI.US)

XTRACKERS ARTIFICIAL INTELLIGENCE & BIG DATA ETF (XAIX.US)

WISDOMTREE ARTIFICIAL INTELLIGENCE UCITS ETF (WISE.US)

GOLDMAN SACHS INNOVATIVE EQUITY ETF (GINN.US)

FIRST TRUST NASDAQ ARTIFICIAL INTELLIGENCE AND ROBOTICS ETF (ROBT.US)

TIAA-CREF QUANT TECH LEADERS ETF (TECB.US)

ISHARES EXPONENTIAL TECHNOLOGIES ETF (XT.US)

ROBO GLOBAL ARTIFICIAL INTELLIGENCE ETF (THNQ.US)

ROUNDHILL GENERATIVE AI & TECHNOLOGY ETF (CHAT.US)