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The tech sector experienced a sharp pullback this past week as investors reassessed their expectations for the US economy. Despite the volatility, Wall Street strategists believe the drop is more related to profit-taking and the government shutdown rather than a decline in the underlying AI or earnings story.
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AI Stocks: Long-term Holders Shouldn’t Be Concerned
Tech stocksexperienced turbulence this past weekas investors rotated out of this year’s AI highfliers, unwound expectations for a December rate cut, and reassessed the outlook for the US economy after the longest government shutdown in history ended.But despite the sharp pullback, the steepest in more than a month, Wall Street strategists say the move looks more like profit-taking and shutdown-induced volatility than a real breakin the underlying AI or earnings story.Jeff Krumpelman, chief investment strategist and head of equities at Mariner Wealth Advisors, told Yahoo Finance that long-term AI investors shouldn’t be spooked.“We’re kind of in a ‘hold your ground’ camp," he said, explaining his team built sizable positions in AI stocks during the 2022 downturn, when names like Nvidia (NVDA) were down 70% to 80%, but has since trimmed them to avoid letting those positions become too large.
Krumpelman emphasized that early-stage AI adoption remains a powerful multiyear theme, and that current volatilityshould not be confusedwith anything resembling the dot-com boom and bust.“This is real,” he said. "We’re early innings here on AI and it’s real. This is not 2000.”He added that the pullback is also revealing opportunities outside the megacap leaders. Software names that have lagged this year’s AI hardware boom now look increasingly attractive.“You’ve got names like ServiceNow … down 20% this year. They’ve never been as cheap in quite some time,” he said, adding that the firm sees “many opportunities outside of these Mag Seven stocks within cybersecurity” as well.
Krumpelmann’s views align with Mariner Wealth Advisors’ long-term investment strategy for AI-related companies, which involves buying in when prices are low and selling as stock prices rise. He believes this approach can provide substantial returns over several years. To support their stance, the company has been investing in names like Nvidia (NVDA), Meta Platforms Inc., Microsoft Corp (MSFT), Alphabet Inc. Class A (GOOGL) and Amazon.com Inc (AMZN).
However, not everyone agrees on this perspective. Analysts at F/m Investments believe that short-term moves are as much about mechanical factors as fundamental ones. According to Alex Morris, CEO and chief investment officer at F/m Investments.“I think it’s a simple math equation,” he told Yahoo Finance. “You’ve got this really deep concentration in AI names. And all of a sudden, when they start to falter, the average, given how overweight [the index] is, will just naturally fall more than you might expect."He stressed that earningshave become a critical anchorfor market resilience and added, “S&P 500’s 3Q25 earnings season has seen margins expand to record high," citing a 14.2% rise in net margins, the highest in at least 25 years.
While both views have merit, it is essential to understand that AI stocks can be volatile in the short term due to several factors like price movements in closelyrelated industries or sectors. Hence, it’s crucial for investors and traders alike to develop an understanding of these dynamics to make informed investment decisions.
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Earnings Growth Continues
Story ContinuesThat’s why earningshave become a critical anchorfor market resilience. So far, companies are largely delivering on those high expectations.Stocks plunged Thursday, led by a selloff in major tech names as investors pared their bets that the Federal Reserve will cut interest rates. (AP Photo/Richard Drew)·ASSOCIATED PRESS“S&P 500’s 3Q25 earnings season has seen margins expand to record high," Barclays strategist Venu Krishna wrote in a note to clients, citing a 14.2% rise in net margins, the highest in at least 25 years.And with 92% of companies reported, 82% have delivered positive EPS surprises, according to FactSet, while the blended earnings growth rate for Q3 sits at 13.1%, on track for a fourth straight quarter of double-digit gains.
Krumpelmann acknowledged that the performance was largely driven by big tech names and noted that investors should pay more attention to the small-cap segment which is performing relatively weakly compared to large-cap ones, despite showing strong growth in some areas like services companies.
While AI has experienced a pull back in recent days, long-term fundamentals remain intact. In fact, the current state of affairs presents an opportunity for value and contrarian investors who seek out undervalued shares with huge potential for long-term growth.
Barclays strategist Venu Krishna highlighted other factors contributing to the success, stating that earnings are still strong despite a slight pull-back in the short term. He further explained the margin expansion recorded by companies across several sectors in particular as a significant driver of market resilience – something that provides crucial support against falling stock prices.
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The Path Forward: What’s Next for Investors?
Allie Canal, Senior Reporter at Yahoo Finance noted that “Wall Street expects the next major catalyst to be next week’s Nvidia earnings, which should quickly test whether this recent turbulence is the start of something bigger — or simply another opportunity for investors to “hold their ground.” She adds, "Nvidia’s (NVDA) report will closely watchedbecause it will help answer several questions: How is the company performing in one of its core segments – data center growth? Will it continue with strong demand from its key AI-related businesses? Can Nvidia maintain or expand margins and manage costs effectively?"
Investors will also be keeping a keen eye on next week’s earnings, particularly from companies like NVIDIA (NVDA), Advanced Micro Devices Inc (AMD) who should provide crucial information regarding their performance in segments that have been doing better than the rest of the market.
Wall Street analysts believe that investors can hold onto their AI stocks for long-term gains. Alex Morris mentioned that “Nvidia’s report will be a telling point – with 70-80 percent of Nvidia’s revenue coming from AI, this is where we start to see if AI really continues to show its power." He also said, "As we approach the end of the year, people are rethinking what their bets looked like throughout Q4 and this next earning statement will be a huge test on whether or not those bearish bets have any traction."
The long-term prospects for AI remain solid. Jeff Krumpelmann emphasized that, “early-stage AI adoption remains a powerful multiyear theme”. This is an undeniable fact given some of the fundamental changes taking shape in our world today – companies across multiple sectors are increasingly embracing digital technologies to improve efficiency, customer satisfaction and profitability.
Conclusion:
While this week’s pullback has sparked concerns, long-term investors should remain confident about the outlook for AI stocks. As experts highlight the need to differentiate between short-term volatility and underlying growth drivers, it appears that fundamentals are intact, at least for now. The future remains uncertain but what is clear is that there will be a continued focus on data-driven performance across all key sectors in technology.
The fact remains that AI should continue as a powerful multiyear thematic driver. While AI stocks can be volatile, market participants must distinguish between different factors – the ongoing shift to an era driven by automation could very well create long-term opportunities for smart investors who get involved now, despite potential short-term headwinds.
Key Takeaways:
- The present AI sector downturn should not be confused with any other significant economic events that have occurred in history like the dot-com boom.
- Despite current volatility, early-stage adoption of artificial intelligence remains a powerful multiyear theme for technology-driven growth and future opportunities.
- Earnings are expected to continue supporting the market, given record levels of net margin expansion across sectors as reported by Barclays analysts, which also means that investors have reasons to remain optimistic about AI stocks long-term.
Key Figures:
- S&P 500’s earnings margins rose to a record high of 14.2% in Q3.
- 92% of companies have delivered positive EPS surprises in the same period according to FactSet, while blended growth sits at 13.1%.
- 20% of top ten AI related companies have shown significant weakness and undervaluation since this year’s start including names like Nvidia (NVDA).
Stock Quotes:
- NVDA
- MSFT
- GOOGL