Citigroup isn't losing sleep over the chance that a possible bubble in artificial intelligence stocks will burst anytime soon. Dirk Willer, the bank's global head of macro strategy and asset allocation, said recent choppiness in the AI trade doesn't mean the bubble is ending. As a result, investors should stay in the stocks, he said. "While the U.S. equity market has triggered our definition of a bubble, which creates some risks, it is important to stress that bubbles are at first typically quite profitable," Willer wrote to clients in a note on Thursday. "We therefore would not overstress the recent AI wobbles, as they are unlikely to herald the end of the bubble." Willer said Citi's equity strategist is focused more closely now on corporate profits than the bubble popping. The bubble peak can be estimated by looking at liquidity and technical analysis — which he said can provide earlier warning signals than the profit outlook. The strategist's comments come as concerns about potential overspending within AI have weighed on key stocks. The technology-heavy Nasdaq Composite dipped 1.5% in November, snapping a seven-month advance. But the Nasdaq is still on track to end 2025 higher by more than 22%, and is trading near its mid-November all-time high of 23,958. .IXIC YTD mountain Nasdaq Composite, year to date Beyond AI, Willer said the outlook for easier monetary policy is another tailwind for stocks. The Federal Reserve is "engineering another soft landing" through its use of lower interest rates, he said. Fed fund futures trading shows Wall Street almost universally expecting a quarter percentage point interest rate reduction, to a fed funds rate of 3.50%-3.75%, at the central bank's last policy meeting of the year next week, according to the CME FedWatch tool. One caveat about the outlook for stocks next year, however. Willer said that years with mid-term Congressional elections, such as those scheduled for next November, haven't been great for equities over time.
