Technology stocks suffered a terrifying decline on Thursday as investors had more opportunity to digest how the U.S. Democratic sweep during the midterms will affect the AI trade. Indeed, things were moving quite fast with AI data centres, but with chatter of moratoriums from the likes of American politician and AI skeptic Bernie Sanders, questions linger as to whether the pace of the great AI infrastructure buildout could be reduced now that Democrats will have more of a say in what happens next.
Indeed, it’s hard to tell what the future holds for the buildout. Any way you look at it, there’s definitely more uncertainty on the table for the AI picks-and-shovels plays that have been skyrocketing in recent years. And, as you’re probably well aware by now, there are few things that investors dislike more than more uncertainty.
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Could the AI buildout still move ahead at a blistering pace?
Time will tell. Either way, I do think that the sell-off facing the AI names is more than warranted. And while the worst of the correction might already be in the rearview, I do think that it might be too soon to brave the fastest falling knives within AI infrastructure.
Whether we’re talking about chips, fabs, cooling infrastructure plays, neoclouds or other equipment suppliers so critical to the buildout, it’s my view that the latest bloodbath is only healthy when you consider the rally in the rearview mirror. You can’t have a multibagger gainer run unchecked forever.
A bear market, in my view, is a good thing for the long-term roadmap and could prevent an actual market-wide AI bubble from bursting. Think of them as much-needed pitstops to tune things up before the next stretch of track.
Some would argue that the AI bubble is already going bust, but, in my view, I do think that once the margin calls settle (there’s still a lot of retail leverage that needs to come off the table), that it’ll be the so-called picks-and-shovels plays of AI that will continue to sink while the rest of the market, including the hyperscalers, moves on, potentially to higher highs.
Shopify could be a solid bet as AI plunges
So, while the tech sell-off feels incredibly painful, it’s worth noting that the semiconductor index is still very much in the green on a year-to-date basis. Sure, a near-40% decline hurts, but whenever there’s a timely doubling, you shouldn’t rule out a timely halving as well once the tide turns.
When it comes to Canadian tech darling Shopify (TSX: SHOP), I think there’s an opportunity to be a buyer of the dip as the agentic shopping revolution looks to move forward. We’ve heard quite a bit about agentic AI this year. But, in my view, its capabilities are still in the very early innings. Perhaps even the first inning, as people try to discover what agents are truly capable of.
In my view, the next three years could see big leaps for agentic capabilities and, with that, increased trust from its users. In any case, I’d look for agentic shopping to have its moment at some point in the next three to five years. It’s still early days, and I don’t think the full magnitude of what could be is baked into Shopify stock quite yet. With shares down around 17%, I do think buying the dip makes a lot of sense for those willing to embrace volatility.
