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The AI trade isn’t dead — it’s just changing its stripes. Investors are already picking winners and losers.
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The market’s reaction to a possible AI slowdown offers a playbook for what’s to come.
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Up until this point, the AI trade has taken countless licks and kept on ticking.
There’s been near-incessant bubble talk, questions over AI’s returns, backlash against debt-funded spending, energy constraints, and a painful memory-stock unwind. Yet the trade has put its head down and moved past each.
It now faces its most abstract pair of risks yet: the prospect that AI could pose an existential threat to humanity, and a possible slowdown championed by some of the industry’s biggest names.
The developments have been enough to give investors whiplash, especially considering that — until this latest bout of AI skepticism — stocks were hovering within shouting distance of record highs.
Monday’s market action offered an early investing playbook for a world where AI development slows. At the index level, the reaction was barely a blip. The S&P 500 fell just 0.5%, masking a much sharper rotation beneath the surface.
After all, a recalibrated pace won’t kill the AI trade entirely. It will instead create a new dynamic, forcing investors to rethink which sectors benefit from — or get hurt by — greater safety efforts.
Here’s what the market is saying investors should buy, sell, and watch:
1. Buy cybersecurity
The move on Monday: CrowdStrike jumped 14%, Palo Alto Networks gained 13%, and the First Trust Nasdaq Cybersecurity ETF rose 6%, even as the broader market fell.
The significance: If AI makes cyberattacks faster, cheaper, and more sophisticated, spending on security will become non-negotiable. This gives cybersecurity a useful hedge-like quality. Regardless of whether the AI race accelerates or slows, companies and governments will need stronger defenses.
2. Buy companies threatened by AI disruption
The move on Monday:IGV, the market’s biggest software ETF, rose 5% on Monday, while Adobe, ServiceNow, and Workday gained between 5% and 7%.
The significance: Software companies have spent much of the year in a particularly awkward spot: They must invest heavily in AI while worrying that it could upend their own businesses. A slower, more safety-conscious rollout could ease both pressures. This dynamic extends to any AI-exposed subsector, with software as the best example.
3. Buy established platforms
The move on Monday: A-list hyperscalers Alphabet and Meta each rose about 3%, breaking from the broader AI-linked sell-off.
