The AI trade could expose investors to substantial losses. Julian Emanuel, senior managing director at Evercore ISI, has raised concerns about the concentration of Big Tech companies in the S&P 500. Warning that it leaves investors exposed to potential significant losses.
He believes that while the AI revolution holds substantial potential, trade developments tend to occur in waves. And excessive enthusiasm can lead to a sell-off in stocks.
In a recent research note, Emanuel specifically highlighted Microsoft, Apple, Amazon, Nvidia, and Google parent Alphabet. A s worrisome due to their clustering within the index.
“Two-thirds [of the S&P 500 are] driven by those top five names,” he told host Melissa Lee. “The public continues to be disproportionately exposed.”
Emanuel reflected on “odd conversations” he had over the past several days with people viewing Big Tech stocks as hiding places.
″[They] actually look at T-bills and wonder whether they’re safe. They look at bank deposits over $250,000 and wonder whether they’re safe and are putting money into the top five large-cap tech names,” said Emanuel. “It’s extraordinary.”
It’s particularly concerning because the bullish activity comes as small caps are getting slammed, according to Emanuel. The Russell 2000 , which has exposure to regional bank pressures, is trading closer to the October low.
For protection against losses, Emanuel is overweight cash. He finds yields at 5% attractive and plans to put the money to work during the next market downturn. He believes it will be sparked by debt ceiling chaos and a troubled economy over the next few months.
“You want to stay in the more defensive sectors. Interestingly enough, with all of this AI talk, health care and consumer staples have outperformed since April 1,” Emanuel said. “They’re going to continue outperforming.”
