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AI's Public Image Is Losing Ground: 4 Defensive ETFs in Focus
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Key Takeaways
AI sentiment risks are rising amid valuation and spending concerns.
Quality and dividend ETFs can offer greater portfolio resilience.
Equal-weight and ultra-short bond ETFs provide diversification and stability.
The artificial intelligence (AI) boom is facing a growing perception problem. According to CNBC’s Jim Cramer, the industry is struggling to convince the public that its rapid expansion will deliver broad economic benefits. The shift in sentiment comes as the broader market faces mounting pressure.
Treasury yields have climbed to multiyear highs. The combination of weakening public sentiment, elevated valuations, massive AI capital spending and growing concerns about monetization could increase volatility across AI and semiconductor stocks. Let’s delve a little deeper.
Jobs, Power Costs and Safety Fuel Concerns
Cramer believes growing concerns over AI-related job losses, rising electricity demand and environmental costs are increasingly overshadowing the technology’s productivity potential.
The debate could become even more important as the United States enters a midterm election year, putting issues such as data-center expansion, power consumption and local economic impacts under greater political scrutiny.
Cramer pointed to reports about Anthropic’s IPO filing, which reportedly warned about potentially catastrophic or existential risks associated with advanced AI systems. He also cited OpenAI’s decision to delay its next model amid safety concerns.
Burry Moves to More Leveraged AI Bets
Meanwhile, investor Michael Burry is becoming more aggressive in his bearish stance on the AI boom, as quoted on CNBC. The investor, best known for predicting the U.S. housing-market collapse before the 2007-2009 financial crisis, said he is shifting from outright short positions toward put options.
Burry said the change reflects his belief that the AI bubble could unwind earlier than previously expected. He also noted that exceptionally low volatility has made options relatively inexpensive, making the strategy more attractive.
AI Spending Faces a Reality Check
Burry pointed to research from Ares Management that questioned the durability of AI-related revenues supporting the sector’s enormous capital spending.
That creates a potential vulnerability for the AI ecosystem, where enormous investments are being made on expectations of continued demand and revenue growth.
Memory Chips Add Another Risk
Burry also cited comments from Acer CEO Jason Chen, who expects the memory-chip industry to become more cyclical as Chinese production capacity expands.
The comments challenge the assumption that tight memory supply can persist indefinitely. Burry had earlier increased bearish positions in Micron, Nebius and SOXX.
What It Means for AI ETFs
At the same time, companies that can demonstrate better quality and chances of less volatility may be better positioned to withstand a potential shift in sentiment. Below are a few defensive ETFs that may prove good bets for risk-averse investors.
iShares MSCI USA Quality Factor ETF (QUAL - Free Report) – Up 1.4% past month, up 16.2% over the past six months
The fund seeks to track an index composed of U.S. stocks with high return on equity, stable earnings, and low debt. The fund offers a way to invest in financially sound companies, as determined by the Index Provider, for long-term portfolio resilience. The fund charges 15 bps in fees.
Vanguard High Dividend Yield ETF (VYM - Free Report) – Down 4.7% in the past month, up 5.2% over the past six months
The underlying FTSE High Dividend Yield Index consists of common stocks of companies paying out dividends that are generally higher than average. The fund charges 4 bps in fees, and it yields 2.35% annually.
Invesco S&P 500 Equal Weight ETF (RSP - Free Report) – Down 4.2% past month, up 8.2% over the past six months
The S&P 500 Equal Weight Index equally weights the stocks in the S&P 500 Index. The fund charges 20 bps in fees and yields 1.52% annually. An equal-weight approach minimizes the company-specific concentration risks.
JPMorgan Ultra-Short Income ETF (JPST - Free Report) – Down 0.3% past month, down 0.4% over the past six months
The JPMorgan Ultra-Short Income ETF seeks to achieve its investment objective by primarily investing in investment-grade, U.S. dollar-denominated short-term fixed, variable and floating-rate debt. The fund charges 18 bps in fees and yields 4.15% annually. Being a short-term fixed-income ETF, JPST appears to be a risk-off bet.
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AI's Public Image Is Losing Ground: 4 Defensive ETFs in Focus
Key Takeaways
The artificial intelligence (AI) boom is facing a growing perception problem. According to CNBC’s Jim Cramer, the industry is struggling to convince the public that its rapid expansion will deliver broad economic benefits. The shift in sentiment comes as the broader market faces mounting pressure.
Treasury yields have climbed to multiyear highs. The combination of weakening public sentiment, elevated valuations, massive AI capital spending and growing concerns about monetization could increase volatility across AI and semiconductor stocks. Let’s delve a little deeper.
Jobs, Power Costs and Safety Fuel Concerns
Cramer believes growing concerns over AI-related job losses, rising electricity demand and environmental costs are increasingly overshadowing the technology’s productivity potential.
The debate could become even more important as the United States enters a midterm election year, putting issues such as data-center expansion, power consumption and local economic impacts under greater political scrutiny.
Cramer pointed to reports about Anthropic’s IPO filing, which reportedly warned about potentially catastrophic or existential risks associated with advanced AI systems. He also cited OpenAI’s decision to delay its next model amid safety concerns.
Burry Moves to More Leveraged AI Bets
Meanwhile, investor Michael Burry is becoming more aggressive in his bearish stance on the AI boom, as quoted on CNBC. The investor, best known for predicting the U.S. housing-market collapse before the 2007-2009 financial crisis, said he is shifting from outright short positions toward put options.
Burry said the change reflects his belief that the AI bubble could unwind earlier than previously expected. He also noted that exceptionally low volatility has made options relatively inexpensive, making the strategy more attractive.
AI Spending Faces a Reality Check
Burry pointed to research from Ares Management that questioned the durability of AI-related revenues supporting the sector’s enormous capital spending.
That creates a potential vulnerability for the AI ecosystem, where enormous investments are being made on expectations of continued demand and revenue growth.
Memory Chips Add Another Risk
Burry also cited comments from Acer CEO Jason Chen, who expects the memory-chip industry to become more cyclical as Chinese production capacity expands.
The comments challenge the assumption that tight memory supply can persist indefinitely. Burry had earlier increased bearish positions in Micron, Nebius and SOXX.
What It Means for AI ETFs
At the same time, companies that can demonstrate better quality and chances of less volatility may be better positioned to withstand a potential shift in sentiment. Below are a few defensive ETFs that may prove good bets for risk-averse investors.
iShares MSCI USA Quality Factor ETF (QUAL - Free Report) – Up 1.4% past month, up 16.2% over the past six months
The fund seeks to track an index composed of U.S. stocks with high return on equity, stable earnings, and low debt. The fund offers a way to invest in financially sound companies, as determined by the Index Provider, for long-term portfolio resilience. The fund charges 15 bps in fees.
Vanguard High Dividend Yield ETF (VYM - Free Report) – Down 4.7% in the past month, up 5.2% over the past six months
The underlying FTSE High Dividend Yield Index consists of common stocks of companies paying out dividends that are generally higher than average. The fund charges 4 bps in fees, and it yields 2.35% annually.
Invesco S&P 500 Equal Weight ETF (RSP - Free Report) – Down 4.2% past month, up 8.2% over the past six months
The S&P 500 Equal Weight Index equally weights the stocks in the S&P 500 Index. The fund charges 20 bps in fees and yields 1.52% annually. An equal-weight approach minimizes the company-specific concentration risks.
JPMorgan Ultra-Short Income ETF (JPST - Free Report) – Down 0.3% past month, down 0.4% over the past six months
The JPMorgan Ultra-Short Income ETF seeks to achieve its investment objective by primarily investing in investment-grade, U.S. dollar-denominated short-term fixed, variable and floating-rate debt. The fund charges 18 bps in fees and yields 4.15% annually. Being a short-term fixed-income ETF, JPST appears to be a risk-off bet.