Jefferies is advising investors to rotate into high-quality, low-momentum stocks as concerns build over the durability of the market’s AI-led rally. The firm said volatility has increased as investors question whether large technology companies will generate sufficient returns from heavy artificial intelligence spending, while the S&P 500 momentum index has outperformed the broader market by more than 70% since 2024, a pace Jefferies said is nearing levels seen during the dot-com era.
Desh Peramunetilleke, Jefferies’ head of quantitative strategy, said the concentration of momentum trades around artificial intelligence has increased the risk of a reversal if sentiment weakens. He argued that questions around potential overcapacity, profitability from an estimated $700 billion in hyperscaler capital expenditures and rising token-related costs could pressure the trade, even as he described AI as a long-term winner. On that basis, Jefferies screened for companies with market capitalizations above $10 billion, strong quality scores, solid fundamentals, long-term free cash flow yields above 3%, limited momentum and valuations below 20 times expected earnings over the next year.
Among the stocks highlighted, AbbVie received one of the highest quality scores in Jefferies’ model. The firm expects the drugmaker to deliver compound annual earnings growth of nearly 28% in 2026 and 2027 and noted a free cash flow yield of 5.2%. AbbVie recently reported $15 billion in first-quarter worldwide net revenue, including $7.3 billion from its immunology portfolio, and agreed to acquire Apogee Therapeutics for $10.9 billion, its largest purchase in more than five years. Jefferies also singled out Netflix, citing its roughly $320 billion market value and 3.6% free cash flow yield, despite recent market pressure on the streaming company.
The two stocks illustrate the mixed market backdrop Jefferies is trying to navigate. AbbVie shares have risen 25% over the past three months and 37% over the past year, while Netflix has fallen 18% so far in 2026 and is down nearly 41% over the last 12 months. Netflix has forecast 13% second-quarter revenue growth, though its shares dropped in mid-April after quarterly guidance missed Wall Street expectations and the company left its full-year outlook unchanged. Other names on Jefferies’ low-stress screen include Lowe’s Companies, McDonald’s and American Express.
