Investors hope these three trades will weather a tech stock downturn
As concerns over a U.S. tech bubble linger, investment strategists are mapping out various diversification plays on both sides of the Atlantic to shore up portfolios against a sharp market correction. Market pros told CNBC that European equities, government bonds and value stocks all offer advantages amid valuation concerns in the artificial intelligence space. Arnaud Girod, head of economics and cross asset strategy at Kepler Cheuvreux, said Monday that he believes the recent pressure in certain AI-linked U.S. tech stocks is likely to continue, noting that a downturn will hit semi-conductors in particular. Speaking with CNBC’s ” Europe Early Edition ,” Girod acknowledged that projected data center capex spending — which is central to the AI boom — for next year now outweighs forecasts made at the start of the year. But he also flagged issues around physical limits — namely power availability, grid connections and overheating — elements that suggest “this boom is also translating into higher inflation.” That, in turn, raises the risk of project delays within the data center space. “This is the risk now, because the boom is so huge that we might see those data center developments coming with a delay,” Girod said. Relative advantage U.S. markets were choppy last week as tech names grappled with valuation concerns and a market rotation, which has piled pressure on the AI narrative. Against this backdrop, European equities offer a portfolio diversification opportunity for global investors, according to Girod. “The relative advantage of European equities right now is that the exposure to AI compared to Japan, compared to Korea, within the stock market is pretty limited to the industrial space,” Girod said. While utilities have recently benefited from speculation about incremental power demand, he added that this remains “very, very small.” Separately, Girod pointed to fixed income as an increasingly compelling trade relative to equities. “If you want to be invested in stocks, you are going to be invested in AI,” Girod said, noting how the top 10 constituents of the MSCI are now U.S. tech names. “We are just a few percent away from the dotcom peak multiple, which I never thought we’d see again to be honest with you — but here we are.” In contrast, bonds are re-emerging as competitive, with treasury markets now yielding 4%. “This is not so bad on a relative term,” Girod said. He conceded that inflation remains “a big question mark” as its downward trajectory could potentially still be hampered by tariffs. But he said U.S. President Donald Trump’s realization of the negative impact on tariffs on consumers is “taking us to a watershed on the tariffs.” The next big play Meanwhile, John Blank, chief equity strategist at Zacks Investment Research, sees value stocks as being “the big play” next year. “It’s going to be value stocks with some growth element,” Blank told CNBC’s ” Squawk Box Europe ” on Monday. Biotech names – which Blank said “have been beaten up pretty badly” – continue to enjoy growth while still offering value, as industrials and banking also look set for a rotation. “There are a lot of areas like that,” Blank said. NVDA 1M mountain Nvidia Investors are also starting to move away from bundling the “Magnificent Seven” stocks together, and are instead thinking more about them on a company-by-company basis, according to Blank. He suggested this shift is reflected in recent quarterly Securities and Exchange Commission 13-F filings from hedge funds and other major investors. Here, Warren Buffett’s Berkshire Hathaway weighed in with a new $4.3 billion stake in Alphabet , while reducing its position in Apple by 15%. David Tepper’s Appaloosa Management cut wagers in Alphabet, Meta and Amazon but boosted its bet on Nvidia by 85%. Dan Loeb’s Third Point added to positions in Nvidia and Amazon, and more than doubled its stake on Microsoft . “We have got a little too carried away lumping the seven big stocks together,” Blank said. “The seven big hyper-scaler stocks go from 200 P/E with Tesla down to 20 P/E with Meta. In the middle you have Microsoft and Alphabet at 30 and Nvidia at 40. People will start to disentangle that seven-stock bundle and start thinking about it given a specific situation. I think you saw that in the 13-F filings.”
Source – CNBC
