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Investing heavily in the technology sector to capitalize on AI’s growth potential comes with increased concentration risks. If the AI-driven stock market bubble bursts, heavily tech-reliant investor portfolios may suffer significant losses, which makes diversifying beyond tech funds and companies a smart play.
The fears of an AI bubble become more prominent after comments from OpenAI CEO Sam Altman. In an interview with the Verge in mid-August, Altman commented that he believes there may be an AI bubble.
Rising concerns regarding the sustainability of the AI boom highlight the sector’s concentration risks and potential systemic vulnerabilities. A recent warning by Goldman Sachs (GS - Free Report) reinforces this concern.
Goldman Sachs Raises Concerns
According to Yahoo Finance, Goldman Sachs is raising an early warning about the short-term outlook for hot AI stocks. Per Ryan Hammond, US equity strategist at Goldman Sachs, recent investor discussions and stock trends show cautious interest in companies with potential AI-driven revenues, as the market debates whether AI is a risk or an opportunity, as quoted in the Yahoo Finance article.
Hammond added that investors would likely seek concrete evidence of near-term earnings impacts before committing to these stocks and believes AI investment as a share of capex may be approaching its peak. This raises the risk of overly optimistic AI investors being disappointed if future earnings fail to deliver exceptionally strong results.
ETFs to Consider
With the recent weaker-than-expected labor data, an interest rate cut now seems all but certain. Per the Bureau of Labor Statistics, in August, the U.S. economy added only 22,000 jobs, as quoted on Yahoo Finance. A rate cut by the Fed is welcome news for tech players and the broader market.
However, preserving capital and cushioning volatility is key for investors looking to navigate a possible volatile period ahead for AI-related players.
Below, we highlight a few areas in which investors can increase their exposure, diversifying beyond tech for broader market participation. This strategy aims to ensure stable long-term returns and mitigate risks associated with an AI-driven stock market bubble burst.
Equal-Weighted ETFs
Investors seeking broad market exposure with a comparatively lower risk profile may consider equal-weighted funds. These funds offer sector-level diversification by assigning equal weight to each constituent stock, regardless of market capitalization, reducing concentration risks.
This makes them relevant choices for investors seeking diversified exposure across sectors. The S&P 500 Equal Weight Index has gained 8.46% over the past year and 3.20% quarter to date.
Invesco S&P 500 Equal Weight ETF (RSP - Free Report) , ALPS Equal Sector Weight ETF (EQL - Free Report) and Invesco S&P 100Equal Weight ETF (EQWL - Free Report) are some good options.
Value ETFs
Vanguard Value ETF (VTV - Free Report) , iShares Russell 1000 Value ETF (IWD - Free Report) and iShares S&P 500 Value ETF (IVE - Free Report) , sporting a Zacks ETF Rank #1 (Strong Buy) or 2 (Buy), can be appealing options. Characterized by solid fundamentals, such as earnings, dividends, book value and cash flow, these stocks trade below their intrinsic value, representing undervaluation.
Quality ETFs
Investors can look at funds like iShares MSCI USA Quality Factor ETF (QUAL - Free Report) , Invesco S&P 500 QualityETF (SPHQ - Free Report) and JPMorgan U.S. Quality Factor ETF (JQUA - Free Report) . Amid market uncertainty, quality investing emerges as a strategic response, providing a buffer against potential headwinds.
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ETFs to Consider as Goldman Sachs Flags AI Risks
Investing heavily in the technology sector to capitalize on AI’s growth potential comes with increased concentration risks. If the AI-driven stock market bubble bursts, heavily tech-reliant investor portfolios may suffer significant losses, which makes diversifying beyond tech funds and companies a smart play.
The fears of an AI bubble become more prominent after comments from OpenAI CEO Sam Altman. In an interview with the Verge in mid-August, Altman commented that he believes there may be an AI bubble.
Rising concerns regarding the sustainability of the AI boom highlight the sector’s concentration risks and potential systemic vulnerabilities. A recent warning by Goldman Sachs (GS - Free Report) reinforces this concern.
Goldman Sachs Raises Concerns
According to Yahoo Finance, Goldman Sachs is raising an early warning about the short-term outlook for hot AI stocks. Per Ryan Hammond, US equity strategist at Goldman Sachs, recent investor discussions and stock trends show cautious interest in companies with potential AI-driven revenues, as the market debates whether AI is a risk or an opportunity, as quoted in the Yahoo Finance article.
Hammond added that investors would likely seek concrete evidence of near-term earnings impacts before committing to these stocks and believes AI investment as a share of capex may be approaching its peak. This raises the risk of overly optimistic AI investors being disappointed if future earnings fail to deliver exceptionally strong results.
ETFs to Consider
With the recent weaker-than-expected labor data, an interest rate cut now seems all but certain. Per the Bureau of Labor Statistics, in August, the U.S. economy added only 22,000 jobs, as quoted on Yahoo Finance. A rate cut by the Fed is welcome news for tech players and the broader market.
However, preserving capital and cushioning volatility is key for investors looking to navigate a possible volatile period ahead for AI-related players.
Below, we highlight a few areas in which investors can increase their exposure, diversifying beyond tech for broader market participation. This strategy aims to ensure stable long-term returns and mitigate risks associated with an AI-driven stock market bubble burst.
Equal-Weighted ETFs
Investors seeking broad market exposure with a comparatively lower risk profile may consider equal-weighted funds. These funds offer sector-level diversification by assigning equal weight to each constituent stock, regardless of market capitalization, reducing concentration risks.
This makes them relevant choices for investors seeking diversified exposure across sectors. The S&P 500 Equal Weight Index has gained 8.46% over the past year and 3.20% quarter to date.
Invesco S&P 500 Equal Weight ETF (RSP - Free Report) , ALPS Equal Sector Weight ETF (EQL - Free Report) and Invesco S&P 100 Equal Weight ETF (EQWL - Free Report) are some good options.
Value ETFs
Vanguard Value ETF (VTV - Free Report) , iShares Russell 1000 Value ETF (IWD - Free Report) and iShares S&P 500 Value ETF (IVE - Free Report) , sporting a Zacks ETF Rank #1 (Strong Buy) or 2 (Buy), can be appealing options. Characterized by solid fundamentals, such as earnings, dividends, book value and cash flow, these stocks trade below their intrinsic value, representing undervaluation.
Quality ETFs
Investors can look at funds like iShares MSCI USA Quality Factor ETF (QUAL - Free Report) , Invesco S&P 500 Quality ETF (SPHQ - Free Report) and JPMorgan U.S. Quality Factor ETF (JQUA - Free Report) . Amid market uncertainty, quality investing emerges as a strategic response, providing a buffer against potential headwinds.