AI Stocks: Is it Time to Book Profits?

This year’s stock market rally has been fueled by just one term: AI. The theme has sent shares of multiple names flying higher, with the likes of NVIDIA (NASDAQ:NVDA) soaring by as much as 204% over the past year. However, it may be time for investors to book profits as we progress into H2 2024.

The AI Rally

The current AI rally has been reminiscent of the dot-com boom of yesteryears. Any company that announces something even remotely associated with AI has been immediately rewarded by investors with a share price jump. In fact, the AI theme has driven nearly half of the MSCI All Country World Index’s (NASDAQ:ACWI) 11% return this year.

However, it may be time to book profits in some of these names, according to Citigroup strategists. Citi’s Drew Pettit noted that sentiment for AI-associated names is at its strongest level in nearly five years. Several of these stocks are expected to outpace free cash flow generation expectations in the coming periods.

At the same time, this also implies potentially higher volatility. Pettit suggests reallocating capital from the current AI leaders to other names in the AI ecosystem. According to Bloomberg, market pundits are still divided on whether to bet on AI darlings such as NVIDIA or to go for other potential AI beneficiaries, such as utilities and infrastructure stocks.

The Risks of Following the Crowd

Meanwhile, the FOMO among retail investors about missing out on the AI rally is palpable. However, a highly crowded trade can sometimes backfire. A case in point is the short sellers in Tesla (NASDAQ:TSLA), who got their fingers burned following a 43% jump in the EV maker’s share price in just one month.

Which Is the Best AI Stock to Invest In?

Meanwhile, if you are still looking for a name to ride the AI wave, the TipRanks Stock Comparison tool indicates the highest potential upside of 29% in Micron (NASDAQ:MU) among the major AI names.  

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