Dave Sekera on AI's Parabolic Run, Rotation to Value & Undervalued Sectors

Dave Sequeira, Morningstar's chief U.S. market strategist, reveals a pivotal shift in his 2026 investment thesis: after starting the year with a barbell strategy favoring both value and growth, he now recommends rotating profits from overvalued AI hardware plays back into undervalued sectors. Despite a 32% surge in the Morningstar US Tech Index and massive gains in names like NVIDIA and Broadcom, Sequeira warns that commodity-oriented tech stocks—especially memory and networking firms like Samsung and Cisco—are dangerously overvalued due to unsustainable supply-demand imbalances. He argues that while AI's long-term growth trajectory remains intact, the current euphoria has created a parabolic run in hardware, setting the stage for a sharp correction. Meanwhile, he identifies financials (Bank of America, LPL), defensive real estate (Realty Income, Healthpeak), and consumer staples like Mondelez as undervalued opportunities, especially as GLP-1 drugs ease their headwinds. Sequeira also flags rising interest rates and Japan’s bond market instability as systemic risks, though he remains cautious about near-term rate cuts.