Louis Navellier and Luke Lango explain today’s sector rotation… when and why the market will get back into gear… why cybersecurity stocks are a “must own” … the data suggest power stocks are also a “must own” … rate-cut odds keep falling
This week is bringing a sea of red for many investor portfolios – especially from tech stocks.
AI momentum plays including Nvidia, AMD, and Palantir have been sliding as investors question whether tech valuations have run too far, too fast.
Meanwhile, Home Depot, United Health, and other select value stocks have jumped in the last few days on strong earnings and more attractive valuations.
What are we to make of this rotation? Do momentum/tech investors need to be worried?
Let’s begin with legendary investor Louis Navellier. From his recent Flash Alert in Growth Investor:
We have a bit of a market rotation underway.
This rotation out of the leaders into new stocks that are lagging is perfectly normal. That’s a good sign that money is just being reshuffled in the market, and that’s fine.
Our technology expert Luke Lango is similarly unphased.
From his Daily Notes in Innovation Investor:
Wall Street finally let out a sigh—along with a wave of selling pressure.
Inflation, rate, and growth concerns that had been simmering finally spilled into the market. Think of the past few sessions as static buildup: flat action, jittery headlines, no spark. [This week], the spark arrived.
And you know what? That’s fine.
The market needed a release valve.
After months of red-hot AI gains and stretched valuations, we’re finally seeing cooling
Many are using tomorrow’s Jackson Hole Symposium – and the risk that Fed Chair Jerome Powell says something that roils the market – as an excuse to take profits/rebalance.
Plus, as we detailed in the Digest, August/September is usually a seasonally weak time of year. The S&P’s strong August performance through last Wednesday is the anomaly – not this recent selloff.
That’s, in part, why Luke urges investors to maintain perspective:
The market is pausing, not breaking.
Technicals suggest stocks will bottom soon. A dip in the S&P 500 and Nasdaq to their 50-day moving averages—roughly 3% lower—would fully reset conditions.
Luke is calling for sideways chop over the next one to two weeks before stocks “blast higher” in September.
What will be the catalyst for such a blast higher?
After all, as I noted a moment ago, August and September are usually weak months.
The answer?
Nvidia.
Back to Luke:
We just need one big AI-related catalyst to recharge the bullish narrative and resume this record rally.
We’ll get that at the end of the month with Nvidia’s earnings report.
Given the massive AI infrastructure spending boom still roaring ahead, we think Nvidia is set to deliver blockbuster numbers at month’s end.
That report could do two things at once: 1) remind everyone the AI Boom is very much alive and well, and 2) drown out macro fears with growth so strong it’s impossible to ignore.
Louis is equally bullish on Nvidia’s upcoming earnings. He says that if you’ve been looking to get into the chip giant, this is a good time:
NVIDIA is under siege with some profit-taking. Don’t worry about it – there’s nothing wrong with NVIDIA.
If you want to buy more, [this week has been a good time] to do it.
Pulling it all together, here’s Luke’s short-term roadmap:
This is the digestion phase before the next leg up.
Use it to position smartly — both trimming dead weight and leaning into your highest-conviction AI winners.
The downside of advancements in AI made a lot of news this month
Here in August, there have been a handful of stories you might have missed…
In Canada’s House of Commons, hackers slipped through a hole in Microsoft’s widely used SharePoint software – basically the tool government staff rely on to share files and collaborate.
Once inside, they pulled staff names, emails, job titles, and even details about the devices people were using. Ottawa scrambled to contain the fallout.
In Washington, the U.S. federal court system was blindsided when attackers dug into filing systems, walking away with sealed legal documents. Some reports suggest this may have exposed the identities of confidential informants and sensitive indictments.
And over in France, telecom giant Bouygues admitted that hackers stole the personal details of 6.4 million customers – everything from addresses to bank account numbers.
Welcome to the age of high-tech hacking.
Let’s return to Luke:
For years, hackers worked like artisanal thieves: crafting code, testing exploits, iterating until they found a way in. Painstaking work.
But now they’ve got AI-powered battering rams.
Large language models can generate malware in seconds. Automated reconnaissance tools can scan the digital universe for vulnerabilities faster than human security teams can even pour a cup of coffee. Once-humorous phishing emails now read like they really were written by your boss, complete with tone, phrasing, and context.
In short, hackers have leveled up. And they’ve done it with the exact same technology Wall Street is drooling over: AI.
A handful of cybersecurity stocks to consider today
Palo Alto Networks (PANW) delivered blockbuster earnings results earlier this week.
Annual recurring revenue blew past expectations. Profits popped. Management’s guidance for next year was stronger than the Street anticipated. And the stock shot higher in after-hours trading.
But Luke writes that PANW won’t be hogging all the investment gains. Cybersecurity is entering its AI supercycle – presenting one of the most compelling multi-year growth opportunities on Wall Street:
This is a rising tide story. Investors don’t have to pick just one winner.
Enter Palo Alto, CrowdStrike (CRWD), Fortinet (FTNT), Zscaler (ZS), SentinelOne (S), and the rest of the cyber elite.
Gone are the days of traditional firewalls. These security titans are building autonomous, AI-native defense platforms that can anticipate, detect, and neutralize attacks at blazing speeds.
But there’s another major reason why cybersecurity stocks deserve a place in your portfolio.
In recent Digests, we’ve been highlighting the recent shift within the AI space that’s dangerous for investors…
AI is eating itself.
Companies that looked like innovators just a couple of years ago are already being commoditized by newer AI tools.
For example, in yesterday’s Digest, we highlighted how Luke just sold GoDaddy (GDDY) in his Innovation Investor service. This once-shiny web-building service with its self-proclaimed “revolutionary AI Website Builder” tool looks increasingly unnecessary now that ChatGPT can spin up a site within minutes.
Investors must be aware of this evolution or else find themselves with a basket of yesterday’s tech leaders that are slipping into irrelevance.
Here’s Luke:
Even within the AI economy, a fresh bifurcation is emerging…
Former high-flying AI stocks are slipping. The disruptors are being disrupted. That’s how fast AI is evolving.
Cybersecurity is different
Unlike website builders, password managers, or generic SaaS tools, security doesn’t become obsolete just because the technology landscape shifts. If anything, it becomes more essential as AI tools grow more powerful.
Sure, AI can automate creative work, but it also supercharges cybercrime. Hackers are using generative AI to write malware, tailor phishing emails, and scan for vulnerabilities at a speed no human team could match.
Companies, governments, and individuals need stronger defenses. And that gives leading players like Palo Alto Networks insulation from AI disruption.
Bottom line: The same AI technology that’s eating yesterday’s tech is feeding tomorrow’s cyber threats. So, while other tech categories are being commoditized, security is non-optional.
Here’s Luke’s take:
As long as data exists – and hackers are around to steal it – this sector’s surge has no end date.
We recommend you use Luke’s earlier list of cybersecurity plays as a starting point for your own research. And to learn which stocks he’s officially recommending in Innovation Investor, click here to learn more about joining him.
Another relatively insulated way to play AI
Earlier this week, we featured recent comments from OpenAI Chief Executive Officer Sam Altman:
You should expect OpenAI to spend trillions of dollars [on data center construction in the] not very distant future.
To be clear, that’s “trillions” plural, not just “a trillion.”
We don’t know exactly how much power AI will require, but we feel confident answering “more – lots more.”
And that creates a layer of insulation for the companies powering AI’s growth.
Here’s Luke with some data:
According to new research from Bloomberg, AI data centers could consume 1,600 terawatt-hours of electricity by 2035 – about 4.4% of global electricity.
If they were a country, data centers would rank fourth in electricity use, just behind China, the U.S. and India.
In terms of growth, global data center power demand is expected to quadruple in the next 10 years.
All this means that big AI data center operators will keep buying more and more power from major power suppliers, which investment-wise means that AI power stocks should keep powering higher.
For a few ideas on how to play this, consider:
- Vistra Corp (VST) – It’s one of the largest U.S. power producers, with a strong footprint in natural gas and growing renewable generation, making it a direct supplier to the data centers that need constant, reliable electricity
- NextEra Energy (NEE) – It’s a leader in renewables and battery storage, positioned to provide the clean energy that hyperscale data centers need
- Constellation Energy (CEG) – It’s the biggest U.S. nuclear power operator, offering round-the-clock baseload power, exactly what AI data centers demand
But make sure to check their valuations. A great deal of anticipated growth is already priced in, potentially limiting upside if growth doesn’t meet projections.
Once again, for Luke’s favorite ways to play this in Innovation Investor, click here to learn more about joining him.
All eyes on tomorrow…
Tomorrow morning at 10:00 a.m. Eastern, Federal Reserve Chairman Jerome Powell takes the stage at the Jackson Hole Symposium to deliver a speech called “Economic Outlook and Framework Review.”
Wall Street will be listening intently for clues about interest rate policy – specifically, a cut in September.
A couple weeks ago, traders put 100% odds on at least a quarter-point cut. But as I write Thursday morning, that probability has slipped to 73%.
If you listen to Kansas City Federal Reserve President Jeffrey Schmid, those odds should be even lower.
From CNBC this morning:
Schmid expressed doubt about lowering interest rates in September, saying policymakers still have more work to do on inflation.
Speaking to CNBC from the Fed’s annual symposium in Jackson Hole, Wyo., Schmid pushed back on market pricing that points strongly to the Federal Open Market Committee lowering its key borrowing rate next month.
“We’re in a really good spot, and I think we really have to have very definitive data to be moving that policy rate right now,” he said
If Powell echoes this sentiment tomorrow, then – coming full circle to the top of today’s Digest – this week’s “sea of red” will likely get even redder.
We’ll update you tomorrow.
Have a good evening,
Jeff Remsburg
