HSBC told clients on Thursday that the recent downward move in stocks looks excessive and published a set of 11 Buy-rated names it believes investors can consider following significant pullbacks.
Strategist Nicole Inui pointed out that, while the S&P 500 has traded in a range for several months, there has been sharp weakness under the surface. Inui noted that tech and industrial shares have each slipped 8% to 9% over the past three months amid an unwind of the AI trade, and that some sub-sectors have fallen nearly 20% from their peaks despite what the firm views as healthy underlying fundamentals.
“The S&P 500 index has been range-bound over the past several months, but that masks the huge rotation we are seeing beneath the surface,” Inui wrote in the note.
By contrast, defensive sectors have been performing strongly: consumer staples and health care are trading near one-year highs and carry valuation premiums relative to the broader market that are close to five-year highs, HSBC said.
Highlighting where it sees mispricing, the bank said: “We believe the correction in equity markets has been overdone, especially in these oversold sub-sectors of the markets, including semis, capital goods.”
HSBC's list of Buy-rated stocks includes Alphabet (GOOGL), Applied Materials (AMAT), Baker Hughes (BKR), Bloom Energy (BE), Citigroup (C), Freeport-McMoRan (FCX), GE Vernova (GEV), NextEra Energy (NEE), Oracle (ORCL), Sempra (SRE) and Vertiv (VRT).
The selection emphasizes companies connected to growing electricity consumption and expanding data center capacity. HSBC specifically cited Bloom Energy for its on-site power systems, GE Vernova for a robust order backlog, and Vertiv for its power and cooling equipment for data centers.
HSBC also highlighted company-specific drivers elsewhere on the list: Alphabet's potential to monetize AI within search and cloud businesses; Applied Materials' exposure to advanced semiconductor and memory equipment markets; Citigroup's trajectory toward recovering profitability; and Freeport-McMoRan's sensitivity to copper and gold price moves.
Context and implications
HSBC's note frames the recent weakness as selective rather than uniform across the market. The bank's recommendations tilt toward firms that stand to benefit from structural demand for electricity and data center infrastructure, while warning that the broad market's range-bound behavior obscures substantial sectoral rotation.