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The remarkable advance in artificial intelligence-linked technology and semiconductor shares may be entering a more vulnerable phase, according to Barclays, which believes investors should prepare for the possibility of a near-term market correction.
The bank notes that semiconductor stocks have risen at an exceptional pace, with the MSCI World Semiconductors index gaining around 50% in just two months. Such a move ranks among the strongest seen in more than two decades and has left positioning increasingly crowded.
Barclays strategists, led by Emmanuel Cau, argue that momentum-driven investors and systematic trading strategies have been key contributors to the rally, but their ability to provide further support may be diminishing as exposure reaches elevated levels.
A busy pipeline of technology IPOs and fundraising transactions is also expected to compete for investor capital, potentially reducing liquidity available for existing stocks.
At the same time, markets face an important test from upcoming central bank decisions. Investors will closely watch the Federal Reserve’s June meeting under new leadership, while the European Central Bank is still expected to pursue tighter monetary policy despite slowing economic growth.
“The combination of frothy technicals and a catalyst-heavy June suggests that the chances of a tactical pullback, especially in the narrow momentum space, cannot be dismissed,” the strategists wrote.
Although Barclays sees increasing short-term risks, it remains optimistic about the broader equity outlook. Strong corporate earnings and long-term investment trends continue to provide support, and the bank stresses that speculative behaviour remains concentrated in a relatively small segment of global markets.
“To be clear, we are not bearish Semis. But given the parabolic price action across the space recently, if it were to take a breather, this would likely play in favour of some rotation into less Tech heavy regions,” the strategists continued.
In the event that semiconductor shares pause their advance, Barclays expects investors to explore opportunities in software, aerospace and defence, as well as consumer sectors tied to discretionary spending such as luxury goods, tourism and leisure activities.
The bank added that any progress toward a U.S.-Iran agreement could further encourage a shift away from crowded AI trades and support markets that have lagged the technology-driven rally.
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