Since AI models reached high performance levels, the stock market unity of the tech sector has shattered. While semiconductors are soaring, software publishers are struggling. Could luxury face a similar fate? This is essentially the question Bernstein is posing, relatively speaking.

For a long time, luxury was driven by a relatively simple mechanism: the progressive enrichment of the global middle classes, particularly in China, expanded the pool of aspirational customers. Major generalist brands took full advantage of this, leveraging their brand awareness, retail networks, marketing prowess, and ability to attract first-time buyers. This model has not been invalidated: it could return to favor if China regains a more favorable macroeconomic trajectory, if wealth creation becomes more widespread again, or if other emerging nations manage to foster a significant middle class. In such a scenario, mega-brands like Louis Vuitton, Dior, or Hermes would maintain a natural advantage.

However, the 'weak signal' highlighted by Bernstein lies elsewhere: luxury could become a market increasingly driven by Ultra-High-Net-Worth individuals in a world where income and wealth inequalities continue to widen. Under this hypothesis, the challenge is no longer just selling many expensive products to many customers, but selling extremely expensive pieces to a limited number of ultra-wealthy clients. Bernstein illustrates this shift with a telling example: a client capable of purchasing a unique piece of high jewelry for 30 million euros can replace 10,000 customers spending 3,000 euros each.

This is where the comparison becomes less favorable for LVMH. Bernstein measures the ability of brands to move upmarket by the gap between the minimum and maximum prices of products listed online. Cartier and Van Cleef & Arpels (brands owned by Compagnie Financiere Richemont) show ratios exceeding 1,000 times, compared to just 7 times for Louis Vuitton. The message is not that LVMH is poorly positioned: the group remains rated as 'outperform' by Bernstein, with a price target of 600 euros. But in a more polarized luxury landscape, Richemont appears to be the most flexible player, capable of capturing both the potential return of aspirational consumers and the rising power of the ultra-rich. For LVMH, the issue is therefore not an immediate alarm, but a strategic background noise: the center of gravity in luxury could slowly shift toward houses capable of selling fewer items, but at much higher prices.

Trough-cycle multiples

On a more pragmatic and short-term level, the ongoing conflict in the Middle East continues to plague the sector's performance, but that is not all. 'Even accounting for the impact of the Gulf conflict, the weakness of underlying first-quarter data raises questions as to whether luxury remains a growth sector,' notes Nick Anderson, a luxury specialist at Berenberg. He also favors 'absolute luxury' and is selling 'aspirational luxury' (i.e., luxury purchased by consumers who are not wealthy in terms of assets, or 'social elevator' luxury).

Sector aficionados may find solace in the fact that there are opportunities to be had based on valuations far removed from historical standards: LVMH is trading at 17 times expected 2028 earnings, a level never seen in the last ten years. Even Hermes appears to be on sale: 29 times 2028 earnings, compared to an average close to 50 times over the past decade. But to reverse the trend, it must be proven that growth can make a sustainable comeback.