The answer depends on whether you believe this is a temporary rotation or the start of a longer leadership change.
My base case would be that this looks more like a rotation than the end of the AI theme. AI infrastructure demand has not disappeared simply because semiconductor stocks corrected. Historically, the strongest secular growth themes often experience multiple 20-30% drawdowns while remaining intact.
That said, when a trade becomes crowded, reducing concentration risk is sensible. If AI hardware has grown into an outsized portion of a portfolio, trimming some exposure and reallocating toward quality financials, industrials, or healthcare names can improve diversification without abandoning the theme.
For new capital, I would be more inclined to buy quality AI leaders on weakness than chase value stocks after a sudden rotation. The key distinction is valuation discipline. Companies with strong earnings growth and reasonable expectations remain attractive. Companies trading primarily on narrative are more vulnerable.
So my approach would be:
Hold core AI positions rather than panic-sell.
Trim only if position sizes have become excessive.
Gradually add on meaningful pullbacks in high-quality names.
Use some fresh capital to diversify into value and cyclicals rather than making an all-or-nothing sector switch.
Market leadership often rotates, but durable earnings growth tends to reassert itself over time. The biggest mistake is usually chasing whichever group outperformed most recently.
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