Hello, Reader.
It is said that art imitates life. But sometimes, life imitates art. At the very least, this week’s AI-related selloff brings to mind the lyrics of one of my favorite artists…
“Knock, knock, knockin’ on Heaven’s door”
Over the past several days, major AI stocks, like the Bob Dylan song of the same title, appear to be knockin’ on heaven’s door. While maybe not yet reaching their ultimate end, they are at least “tangled up in blue.”
Just yesterday, concerns about high valuations, data center financing, and future AI-related profitability led to Wall Street’s worst day in nearly a month. And the major indexes, including the tech-heavy Nasdaq Composite and S&P 500, finished up four straight days of losses, driven by selloffs in prominent AI companies.
The leading trigger for this dip was a report that financing for a large Oracle Corp. (ORCL) data center project fell through, amplifying worries about the risks of financing massive data center buildouts.
Now, the diagnosis for AI companies may not be fatal, at least not yet. But, to refer back to Dylan, “that long black cloud is coming down” on the AI sector.
That means the key to surviving these downturns, which may become steeper and more frequent, is knowing where to find slivers of light through that black cloud.
So, in today’s Smart Money, let’s take a closer look at the AI companies lining up outside of Heaven’s metaphorical door – and the significant factors sending them there.
Then, I’ll share the best strategy for survival, which I further detail in a brand-new presentation I released just today.
The Risks Behind AI’s Biggest Names
Let’s start with Oracle. I’ve previously sung, though not like Dylan, this tech firm’s praises.
However, since the start of this month, the company is down around 10%. It has fallen 5% since Monday.
This grim result stems from Oracle’s fallout with Blue Owl Capital, which abruptly walked away from Oracle’s $10 billion Michigan AI data-center project. (Oracle now claims that funding for the project is back on track.)
The plans fell through due to concerns about Oracle’s rising debt levels and extensive AI spending. And Oracle has certainly been on a spending spree, raising its capital expenditures and debt to build out data centers.
The company released second-quarter earnings for fiscal 2026 last week. In the report, Oracle disclosed capital expenses of $12 billion, which is aggressively higher than analysts’ expectations of $8 billion.
The company said it would ramp up capital expenditures in the current fiscal year from $35 billion to $50 billion. It also reported a negative $10 billion in free cash flow for the quarter.
All in all, Oracle has spooked investors. I saw this writing on the wall or, should I say, Heaven’s door.
I recommended the tech company to my paid subscribers in September 2024. However, I sold it out of my Fry’s Investment Report portfolio just three weeks ago, for a 27% gain.
In my “Sell” advice, I warned that Oracle had “a low probability of outperforming the stock market over the coming year.” Since then, the stock has fallen 13%.
Now let’s take a brief tour of some of this week’s other AI underperformers.
Broadcom Inc. (AVGO) fell sharply since Monday, despite announcing strong AI-related earnings last week. Here’s why: Although Broadcom is selling more AI products, those products make less profit per dollar of sales than its legacy products. So, management forewarned of margin pressures. The broader concerns over AI sentiment further contributed to the company’s selloff.
Then there’s CoreWeave Inc. (CRWV) and Nvidia Corp. (NVDA). Both stocks fell following the larger rotation out of high-growth tech stocks this week. And because Wall Street-darling Nvidia is so large in the S&P 500, it’s 3%+ drop had a negative effect on the index overall.
This is the crux of the AI issue: When major tech stocks drop, even a little, the selloff wave begins. And when panic really sets in, and everyone tries to sell at the same time, this trickle of selling could quickly become a flash flood.
One that could be even worse than the bust that followed the dot-com bubble.
Now, this week’s selloff does not mean AI stocks have arrived at heaven’s door already, but they might be peering through the window.
That’s why it’s so important to prepare your portfolio before the carnage comes… and while big gains are still on the table.
Here’s the best way to survive the coming selloff in the AI sector…
Your AI Selloff Survival Guide
It is important to rotate your money outside of overpriced AI stocks and into companies that have these three defining characteristics…
- High human interaction that can’t be automated
- Physical goods or experiences that exist in the real world
- Proven business models with real revenues and profits, not promises
I call these companies “AI Survivors.”
These are “future-proof” companies – enterprises that produce physical products or services that AI cannot replace.
Take agriculture companies, for example. No matter how sophisticated AI becomes, humans will want to eat avocados and bananas – and AI can’t grow or pick them.
AI Survivors are easy to overlook. That’s because they tend to operate in “old school” industries that seem unglamorous on the surface.
However, these industries could become increasingly glamorous, as AI fans out across the global economy and starts claiming victims in hundreds of industries that are not future proof.
In fact, I released my special AI Survivors broadcast just today. In this free presentation, I warn against a massive correction in AI stocks and detail several AI Survivor companies.
You can click here to watch now.
The move toward AI Survivors is critical to make, and one I am currently undertaking. (Hence, my recent exit out of Oracle.)
Of course, AI has, and will continue to have, to transform our world in incalculable ways. But this week’s AI selloff underscores a point I’ve been making…
Non-AI stocks may hold the keys to the greatest investment gains in the months ahead.
So, click here to access your AI Survivors “survival guide.”
Regards,
Eric Fry
