Is the AI trade dead or just hitting a rough patch? One expert weighs in

AI stocks are tumbling as Trump tariffs bite. Here’s what Stake’s Samy Sriram says investors should do.

Is the AI trade dead or just hitting a rough patch? Pic: Getty Images

• AI stocks slump as Deepseek shakes things up

• Trump’s tariffs also crush Nvidia as tech giants face the heat

• Stake’s Samy Sriram says diversification beats AI hype in rough times

Artificial intelligence stocks have hit a rough patch recently.

Major stocks like Nvidia have dropped over 15% this year and are staring down a barrel with Trump’s tariffs putting them in a tough spot.

On top of that, China’s DeepSeek dropped a bomb with its more efficient AI model, sparking doubts about the need for expensive AI infrastructure.

So, the real question now: Is the AI boom still thriving, or is it losing steam?

Samy Sriram, a markets analyst at trading platform Stake, has some clear thoughts on this and what investors should make of it.

"The AI hype cycle has undoubtedly driven a level of FOMO (fear of missing out) investing, particularly in big tech and semiconductor stocks, leading to inflated valuations," she said.

But Sriram points out that "big AI is no longer the sole theme driving markets." Geopolitical tensions, like Trump's tariffs and the rising trade wars, are reshaping investor behaviour.

"As volatility rises, momentum investing seems less viable and reliable," she said.

The focus has therefore shifted toward more defensive sectors.

Diversification into defensive sectors such as gold-focused ETFs, plus international ETFs such as Vanguard's All-World ex-US Shares Index ETF (ASX:VEU) are becoming more popular, Sriram observed.

Deepseek moment

The launch of DeepSeek, a new AI model from China, indeed caught the attention of investors.

"The week that DeepSeek was introduced to markets, trading activity in one stock clearly stood out," Sriram said.

Nvidia’s stock took a massive hit, losing US$556 billion in a day.

Despite this, Stake investors saw it as a “buy the dip” opportunity. "85% of Nvidia trades were buys despite the drop," she noted.

This was a clear sign that many investors saw the long-term potential in Nvidia, even as its short-term price fluctuated.

Sriram also observed that "since China’s DeepSeek moment, Stake investors shifted away from ETFs in this period, with buying activity in Vanguard S&P 500 ETF dipping 56%."

This shift indicated a pivot toward more targeted bets on individual tech leaders like Tesla, Nvidia, Palantir and Amazon, which were still among the most traded stocks on Stake, despite the recent sell-off.

Culture and politics impact stocks, too

Sriram also noted how cultural and political events influence market activity.

"Global cultural and political events, like Trump’s tariffs, continue to drive market sentiment and sector performance," she said.

Recently, tariffs on aluminium and steel from countries like Canada, Mexico, and Australia have raised production costs, which has impacted industrial stocks.

In response, investors have turned to gold as a safe haven, pushing prices to US$3000 per ounce.

"Cultural factors also impact individual stocks," Sriram said.

Take Tesla, for example, which remains under scrutiny partly due to Elon Musk's political ties. "Understanding these dynamics is essential for navigating market shifts," she said.

AI hype vs Dotcom bubble

When it comes to tech bubbles, Sriram sees a lot of comparisons between the current AI craze and the dot-com bubble of the late 90s.

However, he argues that there are key differences.

"Many tech giants today, like Google, Amazon, and Apple, were born from that era," Sriram pointed out, "but today’s AI leaders have stronger business models, steady revenue streams, and dominant market positions."

Even so, the elevated valuations of big tech stocks are concerning.

"Big tech stocks have received massive flows of capital over the last year, resulting in stretched valuations," she said.

While these companies may have less downside risk than those of the late ‘90s, he emphasised that "high valuations will always pose a threat, as even small surprises can lead stocks to tumble."

Herd behaviour

Sriram also highlighted the risks of retail investors chasing high-growth tech stocks.

"High-growth tech stocks, including the Magnificent 7, trade at elevated valuations driven by future growth expectations," she explained.

This focus on future growth leaves investors vulnerable to significant losses if earnings or guidance fall short.

"Behavioural biases, like herding, often amplify these moves with panic selling following poor results."

However, Sriram also pointed out that "high conviction, long term investors who backed giants like Apple, Amazon, and Alphabet early on continue to see substantial returns."

For example, "BetaShares NASDAQ 100 ETF (ASX:NDQ) has returned an impressive 133% over five years."

So what should investors do?

Sriram also shared that Stake investors seem to understand the importance of balance, noting that “ASX:NDQ remains a popular ETF for Stake investors, taking the place of the third most popular asset for ASX-focused Stake investors."

When it comes to smart plays in the current market climate, Sriram emphasised that diversification is critical.

"When volatility is tracking higher, diversification is critical for long term investors."

Investors are increasingly hedging against tariff uncertainty by looking at undervalued tech stocks in markets outside the US, like Alibaba and Tencent, which are trading at discounts compared to their US counterparts.

"BABA, for instance, has seen rising popularity among Stake investors, surging 133% the week after launching its AI model to rival the popular DeepSeek."

Dollar-cost averaging into diversified ETFs like Vanguard’s S&P 500 ETF or Vanguard Australian Shares Index ETF (ASX:VAS) will remain a solid strategy.

"This approach helps to mitigate timing risks while accumulating more units when prices dip," Sriram explained.

Balancing individual stock picks with core ETF holdings can offer both growth and stability, a strategy that’s been well received by Stake investors.

The views, information, or opinions expressed in this article are solely those of the interviewee and do not represent the views of Stockhead.

Stockhead has not provided, endorsed or otherwise assumed responsibility for any financial product advice contained in this article.

Originally published as Is the AI trade dead or just hitting a rough patch? One expert weighs in