The stock market has hit a speed bump, not a yawning vortex of doom, as investors question the valuations of top tech and artificial intelligence stocks.
Even though the Nasdaq Composite, down about 6.4% from the record high hit in late October, is closing in on a 10% correction, the rest of Wall Street hasn’t been hit nearly as hard. The S&P 500, for example, despite a fourth straight day of losses on Tuesday, is down only 4% from its peak.
Also worth noting is that the Russell 2000, S&P Small Cap 600 and S&P MidCap 400 were flat to slightly higher Tuesday, another sign that the market carnage is largely confined to big tech. That means that investors shouldn’t panic about the unwinding of the AI trade. They can still find good values elsewhere as factors such as the U.S. rivalry with China reshape the economy.
The Invesco S&P 500 Equal Weight exchange-traded fund, which gives big stocks such as Nvidia and Apple the same weightings as companies with smaller market capitalizations, is trading for just 16 times earnings estimates for 2026. That compares with a price/earnings ratio of 21 for the market cap-weighted S&P 500.
“The market has really been driven by the AI trade but there are lot of stocks in what is still a reasonably good economy that have been left behind,” said Jim Polk, head of equity and a portfolio co-manager with the Homestead Value Fund, in an interview with Barron’s.
Polk and fellow co-manager Mark Iong said they have been finding good values in healthcare, industrials, and even tech. They have big positions in beaten-up insurer UnitedHealth as well as GE Healthcare, a leader in medical equipment.
They also like Deere, the electrical components company Eaton, the chip-equipment firm Lam Research and design software leader Adobe. The key, Iong said, is to not panic about the recent volatility.
“The AI bubble bursting is the most highly anticipated bubble ever,” Iong said.
Others point out that investors should focus on big themes beyond AI, such as the continued push toward deglobalization. The Trump administration is likely to push for more American companies to move production back to the U.S. and focus even more on domestic customers.
“There is a great economic power struggle between the U.S. and China. So there is an intuitive appeal for why the U.S. needs to reindustrialize. That’s an opportunity for investors. If you start to do more reshoring, there are lots of winners,” said Sam Klar, portfolio manager with the GMO Domestic Resilience ETF.
Klar told Barron’s investors should focus on four key themes: transportation, defense, manufacturing, and materials. His fund owns the railroad Union Pacific, which he thinks can compete more effectively against trucking firms following the completion of its planned merger with Norfolk Southern.
Klar also recommends defense contractor Northrop Grumman and commercial roofing supplier Carlisle. On the materials side, Klar likes construction aggregates companies Martin Marietta and Vulcan Materials.
Joshua Schachter, chief investment officer with Easterly Snow, an asset-management firm, also thinks now is a good time to bet on manufacturing coming back to the U.S. He expects “more protectionist policies,” benefiting select industrial and tech companies.
Schachter told Barron’s he owns steel and iron ore producer Cleveland-Cliffs and rebar manufacturer Commercial Metals in the Snow Small Cap Value Fund. He also owns Photronics, a maker of photomasks, which are tools used by semiconductor manufacturers.
Others say that investors shouldn’t completely bail on the tech/AI trade, either. The recent pullback may be creating more attractive entry points, particularly for lesser known companies that haven’t enjoyed the kind of love that investors had lavished on the Magnificent Seven.
“AI has perhaps been overhyped,” said Lori Keith, portfolio manager for the Parnassus Mid Cap Fund, in an interview with Barron’s. “But there is no doubt this will be a durable trend for a decade.”
Electrical component company Hubbell; the hydroelectric, wind and solar power firm Brookfield Renewable Partners; and NXP Semiconductors, a maker of power management chips, are some examples of stocks in Keith’s fund that she believes will ride the AI wave.
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