AI stocks have come under pressure. Which sectors are now favored by managers?
They are shifting their focus to health care, manufacturing and materials, which benefit from structural changes in the economy
Analysts are looking for new investment opportunities amid growing concerns about the overvaluation of AI stocks. While the technology sector is undergoing a correction, experts say the market remains broad enough to find undervalued ideas in other segments.
What sectors do they choose
Amid fears of an overheating AI market, investors may find attractive ideas in the healthcare sector, Homestead Value Fund managers Jim Polk and Mark Yong note. Among the fund's key positions are health insurance company UnitedHealth, as well as GE Healthcare, one of the leaders in medical device manufacturing, Barron's writes.
"The AI bubble is the most predictable bubble in history," Yong says.
Experts also draw attention to topics beyond artificial intelligence, such as ongoing de-globalization. Donald Trump's administration is expected to push harder to bring manufacturing back to the U.S. and reorient companies toward the domestic market.
"There is a serious economic struggle going on between the US and China. The logic that America needs reindustrialization is perfectly clear. And this is an opportunity for investors. The more there is 'backwardation' of industries, the more potential winners emerge," says GMO Domestic Resilience ETF portfolio manager Sam Klar.
He said investors should focus on four areas: transportation, defense, manufacturing and materials. His fund's holdings include railroad operator Union Pacific, which he expects to strengthen its position in competition with trucking companies once its merger with Norfolk Southern is completed.
Klar also singles out defense contractor Northrop Grumman and industrial roofing supplier Carlisle. In the materials segment, his favorites are aggregate producers Martin Marietta and Vulcan Materials.
Easterly Snow Investment Director Joshua Schachter also believes that now is a good time to bet on the return of manufacturing to the US. He predicts that further tightening of protectionism will support individual manufacturing and technology companies.
In the Snow Small Cap Value fund, Miner owns shares of Cleveland-Cliffs Steel Company, rebar manufacturer Commercial Metals, and Photronics, a manufacturer of photographic templates needed in the semiconductor industry.
Will the AI bubble burst
At the same time, analysts emphasize that it is not worth leaving the technology and AI sector completely. The current correction may open more favorable entry points, especially in companies outside the "Magnificent Seven", which have not received such attention before.
"AI is probably overvalued," says Lori Keith, portfolio manager of the Parnassus Mid Cap Fund. - But there's no doubt it's a long-term, sustainable trend - at least for a decade."
Some examples of companies that Keith believes could benefit from the AI economy include electrical component maker Hubbell, renewable energy company Brookfield Renewable Partners and NXP Semiconductors, which makes power management chips.
This article was AI-translated and verified by a human editor
