AI Trades No Longer in Lockstep: Optical Networks and Data Centers Lead, Memory and Power Themes Lag

The AI sector's implied volatility remains at a three-year high relative to other sectors, hindering clients from repositioning into the AI sector. Goldman Sachs derivatives trader Tuteja warned that market sentiment toward the Fed has shifted from "rate-hike fears" in July to a near "bad-news-is-good-news" optimism, a shift that has eroded the previously existing asymmetric opportunity. He maintained his year-end S&P 500 target of 8000 points, but expects the index to trade within a relatively narrow range over the next month and a half, with overall risk-reward appeal declining.