Here's the playbook for investors as new fears rattle the AI trade
Here's the playbook for investors as new fears rattle the AI trade
William EdwardsSun, October 18, 2026 at 9:15 AM UTC
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NYSEIt was a brutal start to October for the AI trade. Where should investors go from here? -
AI-related stocks have faced a downturn thanks in part to rising borrowing costs.
Experts like James Russo and Ross Mayfield suggest taking steps to protect portfolios.
Travis Prentice recommends pivoting to AI adopters like Visa and MetLife.
It was a brutal start to October for the AI trade.
Here's a rundown of how some pockets of the high-flying tech sector have fared this month:
Neocloud firms, which are at the heart of the data center buildout, have tanked, with the Roundhill Neocloud ETF (NCLD) down 31%. CoreWeave shares plunged this week on fears about its debt.
Chip stocks have been hammered. The iShares Semiconductor ETF (SOXX) has fallen 13%.
The Defiance AI and Power Infrastructure ETF (AIPO), which holds power and energy stocks crucial for data centers, is down 14%.
A main driver of the recent sell-off is rising borrowing costs, as investors have grown wary of the leverage that neocloud companies have amassed. Meanwhile, a pair of hot inflation readings this week have added to macro fears as bond yields continue to hover near the highest levels in two decades.
Higher interest rates make borrowing more expensive for companies building AI infrastructure, and higher debt costs are recalibrating the risk-reward profile at a moment when investors are already on edge about returns on capex spending.
Fears of overbuilding and a glut of compute are also weighing on sentiment, and a major slowdown in AI spending would change the entire ecosystem that the AI trade has thrived in since the start of the boom in 2022.
So where should investors go from here? We asked three market pros last week how they're viewing the volatility, and where they'd be putting their money now.
Ross Mayfield, a strategist and VP, Baird
Mayfield said he's overweighting three sectors that act as a hedge against the AI trade amid high concentration in AI-related stocks. They include healthcare, financials, and energy.
Healthcare is defensive, he said, while financials are tied to the health of the overall economy, behaving cyclically. Both industries, however, stand to see their profit margins grow thanks to AI technology, allowing investors to play both sides of the trade, Mayfield said.
Energy, meanwhile, is a direct way to benefit from oil price spikes, which have become more common amid rising geopolitical tensions, he said. Rising oil prices have fueled inflation worries and helped to push up interest rates, weighing on growth stocks.
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While Mayfield is overweight AI hedges, he also remains bullish on the broader AI trade, and said he would be adding to hyperscalers and power infrastructure firms.
Travis Prentice, CEO of the Infomed Momentum Company
Prentice said the AI sell-off signals it's time to become much more selective on which stocks within the trade to stay exposed to.
A theme to lean into right now is agentic AI, he said, as the technology becomes more usable and helpful for consumers.
One part of that is cybersecurity, as AI agents gain access to customers' personal data. Examples of stocks prentice likes in this space includes CrowdStrike, Okta, and Palo Alto Networks.
With the AI buildout trade becoming more risky, he also said it's a good time to move into AI adopters — companies employing the technology to grow profits — Prentice said.
A couple of stocks he pointed to include insurance firm MetLife, which he says is using it to improve efficiency in "every aspect of the business," from risk modeling to customer service; and Visa, which is using AI to boost security and detect fraud.
James Russo, portfolio manager of the US Strategic Core Equity strategy, AllianceBernstein
Russo said he's pivoting aggressively into quality-factor stocks, particularly companies that don't rely on external borrowing.
Larger hyperscalers are stocks that would fit that bill, he said. Within the chip stock space, he said he's looking to stick with firms who haven't just benefited from price inflation, and rather those that have durable competitive advantages that can sustain the high prices for their products.
The AI Quality Growth ETF (AQGX) and Defiance AI Hyperscale Leaders ETF (AIHY) are examples of funds offering exposure to the trades Russo mentioned.
on Business Insider
Source: “AOL Money”
