Investors are still piling into AI plays. In fact, the frenzy has helped pull the S&P 500 up by 15% since the start of the year, enough to see the index set 31 record highs in the same period. But when you dig into the details, many of the stocks that were previously popular picks have actually declined this year, suggesting that investors are becoming more discerning about where they place their bets.
Around 60% of the stocks in the S&P 500 have risen this year. Yet in the same period, over half of the shares in Citi’s “AI Winners Basket” have declined. The index is made up of companies that Citi expects to benefit from the rise of AI, and the basket generated a ton of excitement among the bank’s clients last year. But that dip marks a sharp turnaround from 2023, when more than three-quarters of the firms in the AI basket saw their stock prices rise. You can see a similar trend with investment funds that aim to diversify across a broad range of AI winners. More than half of the individual stocks in BlackRock’s Robotics and Artificial Intelligence ETF, Invesco’s AI and Next Gen Software fund, and First Trust and Nasdaq’s Artificial Intelligence and Robotics ETF have slipped this year.
The change coincides with investors becoming more critical of companies’ optimistic AI spiels. Rather than latching onto any firm that mentions “AI” during earnings calls, investors are focusing on whether companies can substantiate their claims with actual revenue from the technology.
The number of S&P 500 firms mentioning “AI” during their earnings calls hit a record high last quarter. Source: FactSet, Sherwood.
That means, for now, investors are increasingly zeroing in on the one company that’s seeing the biggest tangible benefits from AI: Nvidia. The firm’s highly sought-after chips help power the data centers that run complex computing tasks required by AI applications. That demand means Nvidia is dominating the market, and it’s only growing stronger: the chipmaker is expected to make more revenue this quarter than over the entire year of 2023. Its share price has already more than doubled this year, after more than tripling in 2023. And the firm hit another milestone this week, overtaking Microsoft as the world’s most valuable company by market capitalization.
