AI stocks have been hit recently. Why this investor suggests buying the dip
Investors should take advantage of the volatility in artificial intelligence stocks and scoop up shares at a discount, according to portfolio manager Tom Hancock. Hancock, who runs the GMO U.S. Quality ETF (QLTY) , remains bullish on AI-related stocks even as worries mount over a bubble in the sector. Declines in tech stocks put pressure on the Nasdaq Composite on Tuesday, reversing gains seen in the previous session. Last week, the Nasdaq fell 3%, marking its biggest weekly pullback since April. “We’d certainly be looking at buying more” in the tech sector, Hancock said Monday on CNBC’s ” The Exchange .” “We don’t like every name in the sector, to be clear,” he continued. “We do expect a lot of this kind of volatility going forward. A real, maybe fundamental risk that could come from the volatilities is that the funding dries up if risk aversion rises to a level where investors aren’t willing to support the capex. So where we want to buy is companies where we feel like they can weather that storm. The hyperscalers is particularly where we like to position around the trade.” The investor highlighted Google-parent Alphabet as one of his top AI picks. He also recommended managed care stocks and pharmaceutical names in the damaged health care sector as other upside opportunities, noting that the recent selling driven by concerns over ACA subsidies may be an overreaction, since companies do not earn significant profits from those subsidies. GMO’s U.S. Quality ETF has gained roughly 17.4% year to date, slightly outperforming the S & P 500 over the same period. The fund’s top five holdings are Microsoft, Lam Research , Alphabet, Broadcom and Apple in that order. Other significant holdings include Accenture , Eli Lilly , Johnson & Johnson and Thermo Fisher Scientific . The ETF has $2.7 billion in assets and charges 0.5% in expense fees. QLTY 1Y mountain Performance of GMO’s U.S. Quality ETF over the past year. The fund’s inception date was Nov. 13, 2023. Hancock advised investors to take a long-term approach to AI investing as end uses for the technology will likely appear in five or six years. A pullback in tech and AI stocks over near-term concerns — such as this week’s selling around the record-setting U.S. government shutdown — should not phase the market given that hyperscalers maintain strong balance sheets and have long investment horizons, he said. “That’s not really what matters, so when you see selling on that, I think that’s a good buying opportunity,” Hancock said, referring to the choppy trading in stocks this week caused by worries over the shutdown. “On the other end, the market gets too excited about risk-on, it’s probably a good time to take some profits.” Hancock called out Alphabet as a “unique” play within the AI system, given that it provides end applications with Google Search and YouTube as well as infrastructure for AI through their custom-designed Tensor Processing Unit, or TPU, chips. Google last week announced that Ironwood, its seventh-generation TPU that will be its most powerful chip yet, will be available in the coming weeks. “They have their own TPU chips that give them a cost of goods advantage over other people who are using Nvidia chips. They also have their own proprietary data. They have their own workloads. They have their own technical expertise,” the portfolio manager said. “So if you’re thinking among the LLM providers, I think that’s really a great place to position in … one of our favorite AI stocks, no doubt.”
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