AI stocks slide: experts warn that diversifying investments is essential

After 2.5 trillion dollars in value was wiped off the Nasdaq composite index this week, it has once again become clear how heavily the stock market depends on the growth of the artificial intelligence sector. On Thursday the Dow, the S&P 500 and the Nasdaq all recorded their worst day in 19 months.

Fears that new policy obstacles, including moratoriums on data center construction, could follow the Democrats' sweeping wins in the midterm elections also accelerated the market decline. As technology companies' valuations have risen, many people's investment portfolios and 401(k) retirement savings plans have become heavily concentrated in AI stocks without their realising it.

Chipmakers now account for nearly a fifth of the S&P 500's market value, and the top 10 stocks for almost 40 percent. Notably, the S&P 500 had risen almost 88 percent since the day OpenAI introduced ChatGPT in November 2022.

This correction is a wake-up call, says Arun Sundaram, senior vice president of equity research at CFRA Research. Rather than selling all AI stocks, investors can increase safety by putting money into healthcare stocks, long-term bonds and exchange-traded funds, advises CIO Group founder David Bailin.

"Diversification will not stop losses, but it reduces a plan's reliance on a single sector," says Tomas Geoghegan of Beacon Hill Private Wealth. The common advice from experts is to act methodically and avoid panic selling in the turmoil.