Before the next selling wave occurs, understand how to safeguard profits and pivot toward more reliable investments.
Hello, Reader.
Art is often said to imitate life, but sometimes life mirrors art as well. This week’s selloff in the AI sector evokes the lyrics of one of my favorite songs…
“Knock, knock, knockin’ on Heaven’s door”
In recent days, notable AI stocks resemble the aforementioned song, indicating they may be “knockin’ on heaven’s door.” While they may not be at their ultimate end yet, they’re certainly “tangled up in blue.”
Concerns over inflated valuations, data center funding, and future AI profitability caused Wall Street to experience its worst day in almost a month. Major indexes like the tech-heavy Nasdaq Composite and S&P 500 faced four consecutive days of declines, driven by selloffs in prominent AI companies.
The Risks Behind AI’s Biggest Names
Let’s examine Oracle’s situation. Despite my previous praise for this tech giant, Oracle has declined nearly 10% since the start of the month, with a 5% drop just this week.
This downturn is primarily due to Oracle’s failure to secure financing with Blue Owl Capital for a $10 billion AI data center project. Although Oracle claims funding issues are resolved, investor confidence has been shaken by rising debt levels and significant AI expenditures. In its recent earnings report, Oracle noted capital expenses of $12 billion, exceeding analyst expectations of $8 billion, and reported a concerning negative $10 billion in free cash flow for the quarter.
Your AI Selloff Survival Guide
To navigate the challenges of AI stock selloffs, it’s crucial to shift investments from overpriced AI stocks into companies that possess three key traits:
- High human interaction that cannot be automated
- Physical products or experiences in the real world
- Established business models with verified revenues and profits
I refer to these companies as “AI Survivors.” These firms represent “future-proof” entities producing goods or services that AI cannot replace.
Industries like agriculture are prime examples—AI may advance, but humans will still want to consume produce that AI cannot grow or harvest. While these “AI Survivor” companies may seem mundane, they could gain increased prominence as AI spreads across the economy, affecting industries that are not resilient to future changes.
Embracing the Shift
This week’s AI downturn serves as a reminder: non-AI stocks may provide substantial investment opportunities in the months to come. To fortify your portfolio against potential crises, consider focusing on these resilient companies.
Access my AI Survivors “survival guide” here.
Regards,
Eric Fry
