As Chip Stocks and Neoclouds Sell Off, “Everything Else” Catches a Bid

Over the last two weeks, AI stocks have seen the most intense selling pressure since the collapse of hedge fund Situational Awareness in July.

Chip stocks, as measured by the iShares Semiconductor ETF (SOXX), fell 11.8% last week alone and were lower by 16.3% from their early-October highs at Friday’s close.

The neoclouds (companies whose business model is renting out computing power, or GPU-as-a-service) fared even worse, epitomized by the performance of CoreWeave (CRWV), which shed 25.2% in the last week and 31.5% in the last two.

And while concerns about the overall health of CoreWeave played a major role in the downturn (yields on the company’s bonds spiked to more than 15% at one point, a level that signals distress), peers Iren (IREN) and Nebius (NBIS) fared just as poorly, falling 44.4% and 33.8%, respectively, from their one-month highs.

But there’s a notable silver lining amidst all this selling. As pressure intensified in AI stocks, money simply rotated into other areas of the market.

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You can see that rotation clearly in the table below, which shows the five-day returns of all 11 S&P 500 sectors (as of the close on October 16).

The only notable decline in the last week was limited to Information Technology, while Consumer Staples, Energy, Health Care and Materials all logged impressive one-week returns.

There is, undoubtedly, a defensive bent to the repositioning, as Staples and Health Care are typically viewed as the most resilient sectors in a downturn, but the most important takeaway isn’t who outperformed last week but that any sectors outperformed at all.

Rather than liquidating high-flying AI names and fleeing to cash, big investors opted to stay invested and simply adjust their positioning, which is a signal that, for all the concerns about valuations, smart money sees exposure to equities as the best play heading into the heart of Q3 earnings season and then into the end of the year.

And given that staying on the same side of the market as smart money is normally a winning proposition, that’s instructive for individual investors as well.

That’s not to say that you should impulsively “buy the dip” at the first sign of selling (Monday’s bounce in tech names aside), but it’s a strong case for maintaining equity exposure.

Importantly, however you choose to invest in stocks, your investments should match your risk tolerance and time horizon. By maintaining a risk level you’re comfortable with, you can avoid making rash decisions while allowing “time in the market” to work in your favor.

That may mean trimming your allocation to high-growth tech stocks and buying small-cap stocks or dividend payers; or if you’re a more active investor, it may mean tightening up your stops.

Alternatively, if you’re looking for a bit more guidance, you may want to consider a subscription to Cabot Stock of the Week, where Chief Analyst Chris Preston identifies the best-looking stocks from a wide range of Cabot’s advisories to recommend the best of the best.

Because Stock of the Week isn’t limited to one style or sector, Chris is well-positioned to pounce on different areas of the market as they come into favor while maintaining the flexibility to rotate out of weak segments when they come under pressure.

Chris has flagged multiple double- and triple-digit winners already this year in areas as diverse as international banking, space-based communications, fiberoptics, semiconductors and health care.

Cabot Stock of the Week is consistently one of Cabot’s best-performing advisories, and if you’d like to learn more about subscribing to Stock of the Week, click here.

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