Investors prefer non-AI stocks for diversification

Traders on the floor of the New York Stock Exchange saw tech shares rise on October 19 as they reacted to a previous week’s decline in the Nasdaq.The Nasdaq dropped 4.5% amid concerns about the implications of rising interest rates on funding for artificial intelligence initiatives.

A Goldman Sachs index tracking the S&P 500, excluding AI stocks, reported a 12.4% increase as of October 22, slightly outperforming the overall S&P 500’s 12% gain.

The heavy presence of tech and AI companies, accounting for around 45% of the S&P 500, has recently become a disadvantage, with the sector down about 7% this month while other sectors remain stable.

Investor shift

Investors are moving away from tech and AI-related stocks, with firms like CoreWeave and Oracle facing a backlash.

Meta Platforms saw a nearly 7% decline after announcing additional capital expenditures and share issuances.

Companies providing power and equipment for AI infrastructure, including GE Vernova and Vistra, have also experienced considerable losses during the market downturn.

The Goldman Sachs index methodology excludes perceived AI enablers from its calculation, which has led to the recent outperformance.

The previously lagging ex-AI index has recently caught up to the S&P 500, which may indicate changing investor sentiment.

Defensive sectors are gaining appeal, with ETFs related to consumer staples, health, and utilities all seeing gains of 7% to 10% this month.

Oppenheimer analysts suggest focusing on non-AI companies for better diversification, recommending increased investment in commercial services and insurance.

Notable companies like Republic Services and MetLife have been upgraded to overweight in Oppenheimer’s recommendations.

Berkshire Hathaway is benefitting from the shift, with its Class B shares climbing 8% this month.

Berkshire’s diverse portfolio, including significant stakes in Geico and Apple, provides stability amid the current volatility.

Trivector Research identifies opportunities in non-tech growth stocks, highlighting Eli Lilly’s recent performance driven by weight-loss drugs.

Viking Holdings is also showing resilience, with a robust booking outlook for 2027, and has received a favorable upgrade from Barclays.