AI Still Has Legs, but Valuation Risk is Back in Focus
AI Still Has Legs, but Valuation Risk is Back in Focus
https://investingnews.com/artificial-intelligence-growth-faces-risk/
Publish Date: 2026-02-20 11:30:00
Source Domain: investingnews.com
- Tech Selloff in Early February 2026: A broad tech selloff occurred in early February, driven by aggressive AI capital spending guidance from tech giants (hyperscalers) and concerns over the rapid release of new AI models disrupting the software sector.
- Index Performance: The S&P Technology Index dropped by nearly 7 percent from its year-to-date high, with the iShares Expanded Tech-Software Sector ETF falling by almost 25 percent and semiconductor-focused funds like the iShares Semiconductor ETF remaining up by over 5 percent.
- Risk Differentiation: Investors had to distinguish between durable AI leaders and stocks with gains driven mainly by sentiment and stretched valuations. Companies showing profitable AI-driven growth were less impacted compared to those with unclear monetization paths.
- Earnings and Sentiment: Guidance from earnings reports about sustained, capital-intensive buildouts and longer payback periods, along with disruption concerns, drove the selloff. Questions about return-on-investment timelines influenced market reactions.
- Lens for Identifying Winners: Active managers differentiate structural growth from speculation by focusing on metrics such as P/E ratios, growing margins, return on equity, and return on invested capital rather than solely relying on headline growth stories.
- Shift in Focus: The focus is moving from merely “how much AI” to “how AI is structured,” emphasizing long-term structural shifts rather than short-term themes.
- Portfolio Strategy: Active management, prioritization of income, and a disciplined approach can help investors navigate short-term volatility while remaining exposed to long-term AI growth.
- Investing Insight: Funds like the Harvest Tech Achievers Growth & Income ETF combine active stock selection and covered calls to enhance yields and mitigate volatility.
