AllianceBernstein advised reducing reliance on tech giants. What should investors buy instead?

AllianceBernstein, an investment firm with $839 billion in assets under management, advises market participants who have profited from this year’s tech rally not to limit themselves to stocks of the largest tech companies, according to Bloomberg. Nelson Yu, head of equity investments at AllianceBernstein, suggests reducing reliance on Big Tech companies, whose stocks account for a significant portion of passive portfolios. He sees the defense sector, healthcare, markets outside the U.S., small-cap companies, and undervalued stocks as alternatives. “We advise clients to think about how to build an ‘anti-passive’ portfolio,” Bloomberg quotes him as saying.

Nelson Yu attributes his advice to growing doubts about the AI boom. According to him, the tech sector’s latest slump raises the question once again of whether the massive expenditures on AI infrastructure will pay off enough to justify the current market value of companies in the sector. Earlier this week, the Nasdaq 100 index—which has a high concentration of technology companies— entered correction territory for the third time this year.

Investor sentiment is also being dampened by weak earnings reports from tech giants, Bloomberg notes. On November 3, Palantir’s stock fell more than 7% during trading: the developer of an AI-based data analytics platform issued a quarterly forecast indicating a slowdown in sales growth. Market participants are now more carefully selecting companies capable of sustaining profit growth, according to AllianceBernstein.

The midterm elections on November 3 in the U.S. brought new risks for the tech sector: the Democrats gained control of both houses of Congress. Investors see this as a threat to stocks, as Democrats may tighten regulations on fast-growing tech companies, particularly AI developers, according to Bloomberg.

According to Nelson Yu, the healthcare sector offers the opportunity to benefit from AI and, to some extent, protect the portfolio. This sector includes pharmaceutical and biotechnology companies that could benefit from the adoption of AI.

In addition, investments in healthcare have traditionally mitigated investors’ losses during market downturns involving fast-growing technology companies. “You could say you win if AI wins, and you win if AI loses,” said the strategist.

An AllianceBernstein portfolio manager advises investors to also take a closer look at defense companies, which could benefit from rising military spending. In addition, he believes that profits for producers of raw materials, energy, and agricultural products could prove to be stable regardless of whether the current pace of investment in AI infrastructure continues.

Among markets outside the U.S., Nelson Yu advises paying attention to Japan, where corporate governance reforms are underway that benefit shareholders, and to Europe, where there are industrial conglomerates with stable cash flows. In Latin America, he says, investors can find attractive stocks in companies capable of capitalizing on rising consumer spending.

He also notes that shares of small companies have recently almost stopped falling in price, unlike those of AI giants. Since its peak on October 6, the Nasdaq 100 has fallen by nearly 10%, while the Russell 2000 small-cap index has fallen by less than 1%.

Strategists at other companies are also seeking safeguards in case fears about the AI boom prove true, but their approaches vary, according to Business Insider. Paul Dietrich, chief investment strategist at Wedbush Securities, suggests that the AI bubble could burst as early as the beginning of 2027, by which time the peak of AI investment will be behind us. He advises investing in gold, which he calls a “safety net” for a portfolio, as well as in copper, dividend-paying stocks, and—like Nelson Yu—in healthcare stocks.

BCA Research, a research firm, is generally optimistic about the outlook for stocks and, unlike AllianceBernstein, recommends increasing the allocation to technology stocks. According to BCA, the “barbell” strategy—a mix of risky and safe assets—will help protect against losses. Franklin Templeton, which manages $1.8 trillion in assets, also has a positive outlook on U.S. stocks but expects significant price volatility. Its chief market strategist, Chris Galipo, advises taking advantage of this volatility and buying stocks at a discount when the market declines.

This article was AI-translated and verified by a human editor