Even with some improvement in recent days, the Nasdaq-100 Index (NDX) is lower by 6.77% for the month ending Aug. 12. That is to say technology stocks, including names with AI ties, have retreated as of late.
Predictably, some previously high-flying ETFs have been pinched as a result. But there’s no shortage of market observers who remain bullish on tech and constructive on the AI investment thesis for the long term. That could signal opportunity for patient investors with assets such as the WisdomTree Artificial Intelligence and innovation Fund (WTAI).
AI stocks, including WTAI holdings, have recently been pinched. But there could be a silver lining, and it could be, at a minimum, twofold. First, valuations on some AI equities probably needed a reset, and that has arrived. Second, the pullback endured by these names and ETFs such as WTAI isn’t a commentary on AI’s long-term efficacy. In fact, the consensus remains that AI isn’t going anywhere. And it’s likely to continue adding momentum in the years ahead.
AI Entering ‘Show Me’ Stage
One of the reasons AI stocks recently faltered is because Wall Street is demanding more in the way of tangible results (adoption, use cases, etc.) and less hype. Regarding results, some patience is required. But that underscores the benefits of ETFs such as WTAI over stock-picking.
“Meanwhile, use cases and real-world applications of AI are in much earlier stages, with significant impact from AI products not expected until 2025. This is leading to cautious spending on software development, while software customers are likewise delaying purchases in anticipation of AI advancements,” according to BlackRock research.
CTOs Trimming Tech Spending in Other Areas
Of note for investors considering assets such as WTAI is data suggesting many CTOs, particularly those at large corporations and organizations, are trimming tech spending in other areas. And they’re redirecting some of that capital to AI. It can be argued that signals commitment to, and validation of, AI.
Additionally, investors mulling WTAI may want to consider the point that the current market environment isn’t fully comparable to the dot-com era of the late 1990s or the digitization craze of 2020.
“We don’t think today’s market is akin to either of these periods,” added BlackRock. “Much of the skepticism on tech’s ability to power on is based on trailing sales and earnings estimates. Yet many tech stocks are cheaper today than they were before the rally began in 2023 when factoring in revisions to forward-looking earnings estimates. As of July, the average 2024 earnings growth forecast for the technology sector stood at 20%. This represents a notable increase from early-year estimates, while profit margins in the sector have also expanded.”
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