It’s not a matter of if the AI trade is going to get hit with a correction at some point down the line; it’s when. Undoubtedly, the broad markets have felt quite chaotic over the past couple of sessions, so it is kind of hard to believe that the S&P 500 is only down around 2%, which is not even a half-correction. Part of the reason why it feels painful is that many retail investors have probably gotten used to markets moving higher week after week.
With markets moving past September and October (seasonally volatile periods for stocks) with gains intact, it seemed like the market momentum was unstoppable, thanks in part to the red-hot AI trade. And while AI demand has stayed in a good spot, it certainly seems like investors want more to justify the steep prices of admission to various stocks that are leading the charge on AI. As always, it’s more about how the actual results stack up against the expectations of investors.
And even if estimates are surpassed by a considerable margin, it can be really hard to tell how a stock will react immediately after. Undoubtedly, it’s getting just a tad tougher to digest quarterly results reactions with the earnings bar set so high on various names in the AI scene.
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Seeking quality and value in the face of a potential AI pullback
In any case, I still think the AI theme is a trend worth sticking with. But do be ready for the dips with cash in hand, just in case a correction centred on AI hits sooner rather than later. Additionally, some of the AI stocks have already gotten crushed far more than the S&P, which is just a few measly percentage points off its all-time highs at the time of this writing. In any case,
In this piece, I’d much rather be a holder of shares of Brookfield Corp. (TSX: BN), a high-quality name that I think might be spared if an AI correction does happen before or perhaps through the holidays. If Canadian blue chips do get hit in such a correction, I’d view such a markdown as a generous gift rather than a lump of coal.
Brookfield Corp.
Brookfield Corp. is a standout alternative asset play if you’re looking for real assets that generate real cash flows in all sorts of market weather conditions. Undoubtedly, hard assets that can produce sustained cash flows, even in economic recessions, should be more sought after for those a bit worried about the state of the AI trade or excessive valuations elsewhere in markets.
In any case, Brookfield Corp. is a standout play that also stands to benefit as it gets more involved with AI data centres, a booming field that could help give Brookfield a shot in the arm. With a new Canadian private equity fund in place and plenty of drivers (think nuclear energy projects behind AI data centres) to look forward to in the new year, shares of BN look priced to buy after a recent 8% dip off highs.
Given the impressive growth drivers, I think Brookfield Corp. stock ought to be worth far more than just 13.3 times forward price to earnings. In short, Brookfield was built to last, and with a robust long-term growth plan as well as a modest multiple, the name is atop my watchlist, especially if an AI correction drags everything down.
