Is the AI technology stock run over, or has it just begun?

June 12, 20234 Comments

Now that the AI stocks have had a big run, some investors might be wondering if they are likely to stage a healthy (or not so healthy) correction. Is the AI technology stock run over, or has it just begun?

If you do a web search for stocks with direct influence by their work in the AI technology, you will find many, many names – including plenty of small to mid capped players who have smaller, or specialized, roles in AI development. I’d like to stick to the large-capped space in this blog, as that’s been where the influence on cap-weighted indices like the SPX has come from. Six of the more dominant names in the space are: Adobe, Google, Micron, Microsoft, Nvidia, Tesla.

Not to say these are the only key players. There are others. For instance, Apple, Baidu (China), Oracle, are large capped players in the game. IBM has been moving into it, too. But I’m going to stick to the six names noted above to keep it simple.

For investors wishing diversification amongst market cap’s, and own stocks that are side-beneficiaries of AI (for example, robotics), you can look at an ETF. For example, BOTZ, BOBO, IRBO, and even Cathy Woods’ famous ARKQ fund – which has a track record vs. the relatively newer ETF’s. I’m not comfortable in charting these ETF’s/ funds for the purpose of this discussion, given that their diversification won’t produce an accurate chart depiction of the specific trend/momentum details behind the AI stocks. But for those interested in the space, it may be worth examining these ETF’s. Note: we do not hold any of the names listed above, including the ETF’s. However, a pullback may change our minds on some of them.

So…Lets just bang the stock charts out and see what we see.

ADBE

This stock has just started to break out from a base. Early yet, but momentum, while early overbought, is not rounding over. Not a bad chart at all, although a pullback is likely.

 

GOOGL

Cross off the name Adobe and put Google in its place – you’ll see pretty much the exact same chart.

MU

Micron (according to VT’s Fundamental Analyst Craig Aucoin) is the lower quality player in the group. After a nice breakout, it is pulling back to its neckline. You don’t want to see that break–per my line on the chart below.

MSFT

Microsoft is in early stages of a potential roll-over. The stock just tested its 2021 highs, and it does look a lot like its beginning a consolidation pattern. Just as it did during the last quarter of 2021 before the poop hit the fan. Very early stage momentum weakness, so I don’t want to ring the alarm bell. Still…I’m wary of this one. But, a breakout (like NVDA saw) would change that view.

NVDA

The poster boy recently broke its old highs on volume. Overbought and overvalued by most metrics, it is ripe for a pullback – but the breakout suggests probable upside thereafter. Hard to argue with this one – despite its froth. Unless it breaks down below those 2021 highs. That would be a good stop if you are long the trade. I’d anticipate a pullback to the neckline.

TSLA

Tesla is not a pure AI play (its an EV company!).  But I’ve read that the company has a jump on the competition from its years of research and know-how.  Besides, its Elon Musk – and who can argue with the smartest guy in the business world, and a leading spokesman for conservative values? Love that guy. Nice breakout, and not yet rolling over from an overbought momentum point of view.

Conclusion

Most of these charts are pretty bullish. Having said that…They are all overbought to varying degrees – the worst being NVDA. That doesn’t mean they wont get more overbought. Google trends search suggests AI stocks word searches may have peaked…chart below

 

Given the above, a correction is likely eminent at some point in the not so distant future. That might be a good point to look at buying, especially for risk-orientated investors.

 

4 Comments

  • By sticking to large caps you miss out on large gains in the smaller stocks such as Verses AI which gained +800% in the last year.

    Reply
    • True enough Bernie–risk/reward type of stuff. I was not avoiding the small caps. I was attempting to analyze the big guys for the overall AI picture technically speaking. Not a recommendation one way or another.

      Reply
  • seems to me that owning the largest, most innovative and most profitable companies in the world is a good idea..really like the QQQs for the long run, volatility and all

    Reply
    • Actually Steve, I completely agree over the LONG term. Nearterm, likely overbought

      Reply

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