Investors can lower their portfolio risk by reducing their weightings of big AI winners, according to Mortonson. As a rule of thumb, Mortonson trims 15% of a holding in a stock if its price moves below the 50-day moving average, as the negative price action can signal the start of a selloff. Taking profits can also help investors lock in gains from shares that have already run up significantly.
To the credit of Big Tech companies, they’ve “delivered the goods on earnings growth” thus far, Mike Reynolds, vice president of investment strategy at Glenmede, told MarketWatch. But the next leg of the AI trade will depend on their massive capital expenditures paying off — and quickly.
“Valuations aren’t pricing in a slow-adoption story here,” Reynolds noted. “They’re pricing in something closer to a one- to two-year buildout and immediate return on investment” — something which is far from guaranteed.
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