AI stocks swing; strategists urge rebalancing and hedges

AI-linked stocks swung sharply last week, with South Korea’s KOSPI tumbling as much as 10% in a single session and ending the week down about 7%. The Nasdaq finished the week roughly 4.6% lower. Micron Technology and SanDisk each dropped more than 10% on a trading day in early July, while Nvidia slipped about 1.25%. Micron’s stronger-than-expected quarterly results briefly lifted sentiment midweek, and later Apple announced price increases for iPads and MacBooks citing higher memory and storage costs.

Traders and strategists pointed to several factors behind the selling: questions over how sustainable heavy spending on AI infrastructure will be, increased use of debt to finance expansion, and concerns that higher technology costs could add to inflationary pressure.

The recent moves concentrated losses in a narrow set of companies. Semiconductor makers, memory-chip producers, large-cap technology firms and suppliers of AI infrastructure have been among this year’s top performers and now represent a sizable share of investor exposure to the theme.

Charu Chanana, chief investment strategist at Saxo, recommended rebalancing positions that have grown disproportionately large and trimming AI, semiconductor or mega-cap tech stakes back to intended portfolio weights. She advised shifting part of allocations into defensive growth sectors such as healthcare and utilities, and increasing exposure to cheaper areas of the market such as select financials and materials to broaden the earnings base. Chanana also suggested considering equal-weight equity strategies to reduce dependence on a few large names and recommended regular investing methods. She wrote: “Dollar-cost averaging (DCA), or investing a fixed amount regularly, can help investors avoid putting all their money to work at market highs.”

UBS maintained a positive long-term view on AI-related demand for infrastructure and recommended focusing on companies that supply the buildout, citing demand visibility, pricing power and earnings momentum. The firm also suggested looking at more defensive segments within the AI ecosystem, including data-center operators and selected payment firms, and pairing equity exposure with capital-preservation strategies to manage periods of heightened volatility. UBS wrote: “We still favor the ‘picks and shovels’ of the AI buildout in our tactical positioning.”

Market data show the scale of recent moves: the KOSPI had nearly doubled earlier in the year before the declines, and volatility in South Korea’s market continued into the new week with another slump of more than 7% reported today. Strategists said AI is likely to remain an important long-term investment theme, and recent volatility prompted recommendations to reduce single-theme concentration and add portfolio buffers.