We got more defensive last week as Wall Street raised the bar for AI stocks
Stocks kicked off September on shaky footing as higher oil prices and Treasury yields tested investors’ appetite for some of the market’s biggest artificial intelligence winners. For the week, the S & P 500 eked out a 0.1% gain, while the Nasdaq gained 0.4%, recovering from a rough start to the historically difficult month of September. Both indexes turned in their fifth weekly gains out of the past six. A stronger-than-expected August jobs report sent bond yields higher Friday, with the 2-year Treasury yield hitting its highest level since January 2025. The report added to inflation concerns already stoked by rising oil prices amid renewed fighting between the U.S. and Iran. The market odds of a September Federal Reserve interest rate hike went to 58%, up from 49.4% a day earlier, according to the CME FedWatch tool . Here’s a closer look at three developments that drove our portfolio last week. We’re balancing out our AI exposure We made some meaningful changes to the portfolio last week, reducing our exposure to some of the AI buildout’s biggest winners, which recently fell out of favor, while adding more defensive names. Even Nvidia ‘s blowout earnings the prior week failed to spark a broader AI rally, reinforcing our concern that investors are becoming less willing to reward even strong results across the group. On Monday, we trimmed Palo Alto Networks ahead of its earnings Tuesday evening, locking in a roughly 148% gain on shares purchased in August 2024. The sale was about holding onto gains after the stock’s more than 80% run this year. Some of the air did come out of that rally since all-time highs in mid-August. This move did not change our conviction that AI will drive greater cybersecurity spending. We exited Corning on Tuesday, locking in an average 52% gain. While still up 70% this year, shares have dropped more than 40% since record highs in late June. On Wednesday, we redeployed some of that capital into BNY and Kimberly-Clark , each starting at roughly 1% weightings in the portfolio. BNY adds a less cyclical, fee-driven financial. Kimberly-Clark offers a cheaper valuation, a 4.75% dividend yield, and a potential catalyst from its pending Kenvue acquisition . We also added to Micron on Thursday, bringing the position to about 1%. Our conviction remains high as AI-driven memory demand continues to outstrip supply, supported by bullish long-term outlooks from Nvidia. Good earnings aren’t good enough Despite better-than-expected revenue and earnings and a bullish long-term AI outlook on Wednesday, the market remains reluctant to reward Broadcom’s growth. CEO Hock Tan raised his fiscal 2027 AI revenue forecast to $115 billion and expects it to double to $230 billion in fiscal 2028. Still, concerns around customer concentration, vendor financing, and data center pushback continue to weigh on the stock. We lowered our price target to $430 from $480 while maintaining our hold-equivalent 2 rating. Shares ended the week down 3%. Ahead…
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