With the Nasdaq-100 Index (NDX) lower by 12.66% for the month ending Aug. 7 and 13.65% below its 52-week high, it might not yet be safe for investors to rush back to mega-cap growth stocks, including those with artificial intelligence (AI).
However, there is some positive news in the form of valuations on some magnificent seven names now looking more appealing. Market participants that want to capitalize on that situation may want to eschew stock-picking and opt for exchange traded funds such as the WisdomTree Artificial Intelligence and innovation Fund (WTAI).
In addition to alleviating the stock-picking burden, WTAI offers investors the added benefit of not being excessively allocated to a small number of stocks. That’s often a hallmark of some cap-weighted technology strategies. Translation: WTAI offers holdings-level diversification that isn’t common throughout the AI ETF space.
WTAI Valuation Picture Improves
Broadly speaking, the technology sector still isn’t inexpensive, but there are some names that are now more attractive on that basis following the recent pullback. That group includes WTAI member firm Microsoft (MSFT).
On the company’s recent earnings call, management discussed some compelling AI points while noting it expects significant acceleration in the Azure cloud computing unit in the second half of the year.
“Therefore, we raised our revenue growth estimates for the medium term, and we also tweaked our profitability assumptions higher based on consistently good performance and a solid outlook. Revenue was again governed by data center capacity constraints and several pockets of slight weakness arising in Europe,” notes Morningstar analyst Dan Romanoff.
Officially a member of the consumer discretionary sector, Amazon (AMZN), another WTAI holding, has ample tech inroads via its Amazon Web Services (AWS) unit and because it’s looking to bolster its AI footprint.
Some investors expressed frustration with management following the recent earnings report and the stock is down 18.35% over the past month. Conversely, some market participants argue that slump could be buying opportunity, adding that the slide has made Amazon more palatable on valuation.
“Changes to our model are modest but center around continued profitability enhancements in the near term. Amazon continues to take strides in efficiency improvements throughout the network, which helps lower costs and improve delivery speeds, and ultimately drives increased purchases by prime members. After a pullback that began in early July, we see shares as increasingly attractive,” adds Romanoff.
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