Is it time for advisors to dump AI stocks?

investmentnews.com:

AI stocks appear to be coming off the boil. So should financial advisors sell these names out of client portfolios before they go totally cold? Or sweat out the recent sell-off in case things heat up again?  

The S&P 500 index is up 17% so far in 2023, a not-too-shabby performance when compared to last year’s drop of the same amount. Unless, of course, one compares it to the returns being seen in the artificial intelligence space.

The Global X Artificial Intelligence & Technology ETF (AIQ) tracking the Indxx Artificial Intelligence & Big Data Index, for example, is up a heady 38% year to date. AIQ currently lists 87 globally diversified stocks, so it’s less diversified than the S&P 500 despite being an international index. Its top three holdings — Nvidia, Meta and Tesla — are also members of a surging stock group dubbed the Magnificent Seven by Wall Street commentators, along with Apple, Microsoft, Alphabet and Amazon.

All that said, the AIQ has dropped 2% in the past week, leading a number of financial advisors and portfolio managers to debate whether the group’s best days are behind it. 

“The Magnificent Seven led the way during the first half of this year. We’ve seen the breadth expand beyond those magnificent seven during the second half of the year thus far. But I believe for that rally to continue, we’re going to need the Fed to stop this current rate-hike cycle and to know that we’ve hit a relatively soft landing,” said Kevin Mahn, president and CIO of Hennion & Walsh.

Mahn may be wary of chasing this AI-led rally much higher, but he’s not giving up on AI stocks — at least not all of them. He likens the current AI craze to the late 1990s dotcom boom, which saw many tech leaders grow stronger through adversity