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Tech stocks have been pummeled in the recent market downturn. Morningstar Chief US market strategist David Sekera argues that AI stocks, specifically, are in a bear market as a result. However, that decline means some stocks may now be more attractive to potential investors. Find out which ones Sekera likes in the video above.
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We have seen you know, that sell off in AI. In fact, I kind of really consider this a bare market right now in artificial intelligence stocks. You know, those stocks across the board are down, you know, 15 to 20%. You know, in some cases, you know, even more. Now they're getting to the point where a lot of those are three star, so it puts in the range of fair value. But only starting to see, you know, handful that have fallen enough that they're actually now looking attractive. You know, a couple that we do like today would be Amazon, you know, that's a four star rated stock at an 18% discount. Service now I think looks pretty attractive. You know, that one's down at least 30% from its high. It's a four-star rated stock trades at a 15% discount. And then for those investors looking for something that might be a little bit more speculative but have some more upside, I'd highlight Marvel. That's down 45% from its high. It's a four-star rated stock at a 24% discount. But there's still some other AI stocks. We think still have further to fall. Arm is going to be one of those more overvalued stocks under our coverage. It's a one-star rated stock trades at over a 60%
premium to our fair value.
David, I'm curious. You mentioned bare market for AI stocks. There was one firm out there, Capital Economics, that had a note out today that essentially suggested if that bare market were to continue, then maybe the S&P 500 could enter a bare market even without a recession, just given how large the market caps are of a lot of those AI companies. I mean, is that a case that you could see playing out where we just keep selling mega cap tech to the point where the index gets weighed down too much?
Yeah, some of the mega cap tech is still a little pricey at this point. But you know, if it were to fall and get back to our fair valuations, I don't think that that would be enough to get us into a bare market overall for the S&P 500. So I'm not necessarily concerned about that. What I really think is that this is just a continuation of the theme that we highlighted early this year. So for 2025, I think this is the year that investing in AI really starts to evolve evolve away from the hardware names, the GPUs, the networking names. You know, the old gold rush adage, people said it wasn't the miners that got rich, but it was the people that sold the picks and the shovels. That's last year's story. This year's story and going forward is going to be identifying those companies that can take AI, incorporate it into their own products and services, use that to help drive revenue, come up with new and novel use cases for it, as well as those companies that can take AI, put it in their own business processes, you know, drive efficiency, be able to drive, you know, additional operating growth and their margins. Those are the companies that I think are going to be the next wave to look for, you know, for that trade.
