Jefferies screens for low-momentum stocks as AI volatility rises
The bank points to quality shares with modest momentum as AI-linked market leadership faces questions over returns on spending.
By Marcus V. Thorne · Markets Editor
· 3 min read
Jefferies has identified a group of large, profitable companies it says may offer investors a less volatile equity profile this summer as concern builds over the durability of the artificial intelligence-led rally. The bank’s quantitative strategy team cited a more than 70% outperformance by the S&P 500 momentum index versus the broader market since 2024, a gap near levels seen during the 1990s dot-com boom.
Desh Peramunetilleke, Jefferies’ head of quantitative strategy, wrote in a Monday note that investors are weighing whether large technology companies can generate adequate returns from an estimated $700 billion in capital spending by hyperscalers, alongside concerns about potential overcapacity and rising token costs paid to AI models.
Momentum strategies have become more dependent on AI, according to Jefferies. The note said that before the outbreak of war with Iran, momentum trades also included materials and defense shares, while current market leadership is more narrowly tied to AI, “increasing the risk of an unwind on adverse sentiment.”
“While we still see the theme as a long-term winner, the above reasons could drive an unwinding of the AI-led momentum,” Peramunetilleke wrote, according to CNBC.
How the Jefferies screen works
Jefferies looked for companies with market capitalizations above $10 billion, high quality scores, sound fundamentals and long-term free cash flow yields above 3%. Free cash flow yield compares a company’s cash generation with its market value, giving investors a measure of how much cash the business produces relative to its equity price.
The screen also required limited share-price momentum and valuations below 20 times expected earnings over the next 12 months. In effect, the bank sought companies that combine balance-sheet or earnings quality with less exposure to the crowded momentum trade.
The list cited by Jefferies included:
- AbbVie
- American Express
- Home Depot
- Lowe’s
- McDonald’s
- Netflix
- PepsiCo
- Procter & Gamble
- S&P Global
- Stryker
AbbVie and Netflix among named companies
AbbVie received a top quality score in Jefferies’ model. The bank said it expects the drugmaker to produce compound annual earnings growth of nearly 28% in 2026 and 2027, with a free cash flow yield of 5.2%.
AbbVie reported first-quarter worldwide net revenue of $15 billion, according to the company, with its immunology portfolio contributing $7.3 billion. The company also agreed last week to acquire Apogee Therapeutics for $10.9 billion, a transaction CNBC described as AbbVie’s largest acquisition in more than five years.
AbbVie is scheduled to report second-quarter results on July 31. FactSet data cited by CNBC show the shares had risen 25% over the prior three months and 37% over the past year, with a dividend yield of 2.7%.
Netflix also scored highly in the Jefferies framework, with a market value of about $320 billion and a free cash flow yield of 3.6%. The company has forecast second-quarter revenue growth of 13%, while saying content spending would be weighted toward the first half of the year because of the timing of title releases.
Netflix shares fell 10% in mid-April after second-quarter guidance came in below Wall Street expectations and the company kept its full-year outlook unchanged, according to CNBC. The company is due to report second-quarter results on July 16. CNBC cited FactSet data showing the stock down 18% in 2026 and nearly 41% over the prior 12 months.
This story draws on original reporting from CNBC.
