AI Investment Rethink: Experts Signal Shift Amid Easing Monetary Policy
A potential shift in market leadership is gaining traction, with some experts suggesting a rotation away from the previously dominant artificial intelligence (AI) stocks. This perspective is fueled by expectations of continued Federal Reserve interest rate cuts and a broader return of liquidity to the market.
John Davi, CEO and chief investment officer of Astoria Portfolio Advisors, articulated this view on CNBC's "ETF Edge." He noted that a wider array of stocks are now receiving a "green light" as liquidity improves within the financial system.
"The Fed cut rates four times last year. They cut rates twice already. They're going to go again whether its December [or] January," Davi stated, emphasizing the historical precedent of interest rate cuts triggering shifts in market leadership. He pointed to recent performance in sectors such as emerging markets and industrials as evidence of this trend. The iShares MSCI Emerging Markets ETF, for example, has risen by 17% over the past six months, while the Industrial Select Sector SPDR Fund is up 9% during the same period.
"I think they can be a good offset to what's an expensive large cap tech position, which dominates most portfolios," Davi added. He cautioned against excessive concentration in a small number of high-flying tech stocks, particularly in light of persistent inflationary pressures. "We're living in a structurally higher inflation world. The Fed is cutting rates like, why do you want to take so much risk in just seven stocks?"
Davi advocates for a globally balanced investment strategy, reducing the overweight position in the so-called "Magnificent Seven" – Apple, Amazon, Meta Platforms, Nvidia, Microsoft, Tesla, and Alphabet. These companies collectively account for a significant portion of the S&P 500's market capitalization, representing approximately one-third of the index.
Uncertainty in AI's Future Value Distribution
Sophia Massie, CEO of ETF-issuer LionShares, echoed similar concerns about overcommitting to the AI trade. In the same CNBC interview, Massie highlighted the uncertainty surrounding the ultimate beneficiaries of AI's economic impact.
"I think analysts have an idea of how much value AI will add to our economy. I don't think we really understand how that's going to play out between different companies yet," Massie explained. She expressed reservations about pricing in the assumption that a single company will decisively dominate the AI landscape and emerge as a clear winner.
The comments from both Davi and Massie suggest a growing sentiment that while AI remains a transformative technology, the investment landscape may be poised for a period of broader diversification and a reassessment of risk in light of macroeconomic factors and the evolving competitive dynamics within the AI sector itself.
