The AI trade keeps printing money, with Nvidia and the rest of the megacaps grinding higher week after week. Underneath all of that, investors are getting picky about which stocks belong on the AI side of the trade and which ones might be the lunch.
That second list is getting longer, and the names on it are getting cheaper.
The "AI Scare Trade" Has A Hit List
Wall Street has started using the phrase "AI scare trade" to describe a different kind of move - selling stocks investors think will be replaced or compressed by AI, rather than stocks that benefit from it. Analysts have flagged a long list of mid- and large-cap companies that face risks like asset repricing, demand substitution, labor substitution, moat decay, and pricing pressure.
The damage is already showing up. Duolingo is down around 40% year-to-date as investors weigh AI tutors against the app, and a major videogame engine maker slid 37% in February after weak guidance.
IBM logged its worst single-day drop since October 2000, which was the height of the dot-com bust. Industries that didn't think they were tech stocks - trucking, real estate, software, insurance, private credit, wealth management - are suddenly trading like they are.
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Two Trades Running At Once
The split is unusual. On the long side, AI bulls are still piling into anything that builds, powers, or sells AI capacity, with chipmakers, hyperscalers, and industrial names that supply data centers leading the way.
On the short side, they're betting against anything they think the same technology will eat. That's why some of the riskiest names look fragile even with the S&P near record highs.
Investors aren't worried about the AI build-out slowing down, but they are worried about who's going to pay for it and who's going to get crushed by it once it's done.
Chinese AI plays like MiniMax and Knowledge Atlas, up around 400% and 900% since their January debuts, show what the upside still looks like - while the widening gap between winners and losers is the real story.
What To Watch
The S&P at all-time highs doesn't mean every stock is safe, with half the index being treated like infrastructure. The other half is being treated like a target.
If you want a clear read on which side of that line a stock is on, Market Briefs has you covered every weekday - signing up comes with a free 45-minute investing course too.
