Al Root

Everyone knows that artificial intelligence is driving the stock market higher. Nvidia's market value is approaching $5 trillion, and technology-based sectors have led the S&P 500 so far this year.

The result is concern about an AI bubble, making it seem as if diversification into safer sectors could be a good idea. But finding shelter from an AI storm might be more complicated than it seems.

22V Research chief market strategist Dennis DeBusschere pointed out in a Friday report that industrial and utility companies that positively mention AI on earnings calls have outperformed peers that don't mention AI.

For industrials, the average year-to-date return for those with positive AI comments is approximately 14%, compared with less than 8% for those without AI mentions. Stocks of utility companies that mentioned AI are up almost 17%, compared with 6% for those that didn't.

That might seem troubling. It is a reminder of the late 1990s, when companies adding ' dot-com' to their names could get a stock market boost. (Remember that after the bust in early 2000, companies removing dot.com also showed some outperformance.)

It isn't all about what executive are saying. Some industrial companies, such as Vertiv and GE Vernova, as well as utilities including Constellation Energy and Talen Energy, are experiencing faster growth due to the expansion of AI data centers.

That is good, but it also means that industrial and utility stocks are part of the AI trade. Protecting a portfolio from an AI bubble will require more than just selling tech stocks and putting the money into other sectors.

Being vigilant can help. 22V is watching trends in capital spending by so-called hyperscalers, including Meta Platforms, Microsoft, Alphabet, and others, to identify any early signs of problems with the AI trade.

The good news is that 22V hasn't seen a peak yet. "The practical implication of strong underlying demand and no evidence of peak capex spend, outside of AI baskets, is to keep pressing cyclical themes," DeBusschere wrote.

In other words, stick with what is working, for now.

That means the two technology sectors in the S&P 500, according to Dow Jones Market Data. Information Technology and Communications Services are up about 25% and 22%, respectively, so far in 2025. The next two are utilities and industrials, up 19% and 16%, while the worst two performers have been consumer staples and real estate, up 2% and 1%, respectively.

Executives in those two sectors might want to try talking more about AI on their earnings conference calls.

This content was created by Barron's, which is operated by Dow Jones & Co. Barron's is published independently from Dow Jones Newswires and The Wall Street Journal.

(END) Dow Jones Newswires

October 10, 2025 13:48 ET (17:48 GMT)

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