Are AI Stocks Still Worth Buying?

As part of a new series showcasing insights from top financial experts, this article was contributed by financial strategist and founder of Weipedia, Wong Kon How.

Technology is the future

Technology will be a key focus for investing in the future, and it always creates waves of excitement among investors. Since the dot-com bust in 2000, online shopping has seen a resurgence starting in 2011 and continuing to the present day. Along the timeline, we have witnessed the emergence of various technology sectors such as smartphones, social media, AI, electric vehicles (EVs), cryptocurrencies, and many others, typically accompanied by hype and subsequent corrections. The good news is that their long-term uptrend is expected to continue.

NVIDIA                                                                           SUPER MICRO COMPUTER INC

Source: TradingView as of 18 Mar 24

Volatility starts to kick in for AI stocks

Related AI stocks, such as Nvidia and SMCI, have started to become more volatile lately. According to the chart above, within 2 days, Nvidia has fallen by 13.6%, and SMCI has dropped by 35.8%. This situation is certainly not for the faint-hearted investor, unless their strategy involves trading them.

Hype followed by correction happens all the time

The last hype was EVs, with the main focus on Tesla. Typically, before hype transitions to correction, there are some telltale signs. The market usually becomes more volatile, as observed in the Tesla chart provided. The following chart indicates that within 5 days, there was a correction of 20.6%. Since then, Tesla has experienced its lowest point with a correction of 75%. Nevertheless, the uptrend for EVs should continue as they still represent the future of automobiles.

TESLA DAILY CHART                                                             TESLA MONTHLY CHART

Source: TradingView as of 18 Mar 24

A safer bet than AI and EV at this juncture

GLOBAL X LITHIUM & BATTERY TECH ETF

Source: TradingView as of 18 Mar 24

About a hundred years ago, a large number of companies were competing for the top spot to become the leading combustion engine automobile maker. Ultimately, many failed, leaving us with some of the familiar automobile household names we know today. EVs should thrive again, but picking the few companies that will become the leading EV automobile makers in the future remains challenging. Furthermore, AI related companies' price-earnings ratios are currently in the 70-80 range, suggesting that there is a risk of a bigger market correction.

The main component of EVs is batteries, which have seen a price correction over the last two years, presenting an opportunity to buy on dips into EV batteries. This strategy mitigates our risks of getting caught up in the hype, and investing in ETFs helps to further diversify our choices in selecting the future leaders. Posturing as an investor also involves measuring downside risks while projecting potential upsides.

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