Is Wall Street Quietly Abandoning The AI Trade?

As I write this Thursday morning, Dow futures are green while Nasdaq futures are down roughly 0.5%. It’s a small but interesting divergence, and one that supports something I’ve been predicting for a while now: a rotation away from speculative technology and AI-related investments and toward established businesses with more predictable earnings and cash flows.

I continue to believe tech, particularly the more speculative corners of the AI trade, is headed lower over the short to medium term. Yesterday’s rally didn’t change that view. As I discussed yesterday, citing Gordon Johnson, I think much of the move could be attributable to VIX compression and the unwinding of election-related hedges. Once the election uncertainty disappeared, investors no longer needed as much protection, implied volatility fell, and the resulting repositioning helped push stocks higher.

That doesn’t mean there wasn’t genuine buying, or that the market can’t rally further. But I would be careful about mistaking a mechanical relief rally for a fundamental improvement in the outlook. Valuations remain stretched, financing costs remain a problem, and the economics of the AI infrastructure boom are increasingly difficult to justify. The election, in my opinion, added another layer of risk rather than removing one.

What interests me more than yesterday’s index performance is where money appears to be moving to.

For a few months, I’ve been arguing that 2027 could be characterized by a rotation away from speculative AI and technology investments and toward larger, established companies with real earnings and durable businesses.

The relative action in some names I’ve pointed out, including Nike (NKE), Costco (COST) Microsoft (MSFT), Uber (UBER), Consumer Staples (VDC) and McDonald’s (MCD), along with several other companies I’ve been watching, suggests that process may already be underway. Names like these are outperforming the NASDAQ and that outperformance appeared to accelerate during yesterday’s rally.

These businesses have very different exposures, but they share an important characteristic: investors can evaluate them based on existing operations and identifiable earnings power, rather than exclusively on extraordinary assumptions about future growth.

Microsoft, for example, may face legitimate questions about its AI spending, but it has the financial resources to fund those ambitions without continually returning to capital markets.

Interestingly, JPMorgan’s trading desk described a similar pattern yesterday. According to an X post by Zero Hedge, JPM’s Brian Heavey noted a clear preference for large-cap quality, particularly companies with access to financing and ownership of computing infrastructure. The desk observed demand for hyperscalers like Amazon, Microsoft, and Alphabet, while second-tier AI infrastructure names like CoreWeave (CRWV) and Nebius (NBIS), which are more dependent on continued capital raising, showed weakness.

As I noted on a brief X Spaces call yesterday, names with leverage (like CoreWeave) and inconsistent cash flows will be the first to be abandoned in the AI space. Quality like Google (GOOG), Amazon (AMZN) and the likes will be the beneficiaries, though I personally don’t love Apple (AAPL) here at 40x earnings.

JPMorgan also noted that AI data-center names were generally underperforming, while more cyclical analog semiconductor companies like Texas Instruments (TXN) and NXP Semiconductors (NXPI) were showing relative strength.

Matt Reiner, also from JPMorgan, described relatively subdued trading activity, with volumes running approximately 16% below normal early in the session today.

Long-only investors were buying, particularly cyclicals, while hedge funds were shorting technology into weakness. He also observed that investors were adding mega-cap technology exposure in relatively small size, while becoming more receptive to shorting the broader AI complex.

To me, the message is fairly straightforward: investors aren’t necessarily abandoning technology, but they appear to be becoming more selective about which parts of it they want to own. The distinction between companies that generate capital and companies that constantly need to raise it is becoming increasingly important.

I also wanted to, again, reiterate the sector postives and negatives I see from the election that I laid out yesterday. Here’s what sectors I think will face headwinds, and others I think will benefit from yesterday’s election outcome.

My outlook remains essentially unchanged…both since yesterday’s reaction, since last week’s speculation the election could crash markets, and since August when I first floated the idea of the AI crash.

I still expect technology, particularly speculative AI infrastructure, to...(READ THIS FULL ARTICLE HERE).

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