Written by Joey Frenette at The Motley Fool Canada
There’s a bit of heightened anxiety when it comes to some of the growth plays, especially as the tech trade starts to show a few signs of cracks after a turbulent past week of trading. Although AI, the technology and promise, might not be in a bubble, I do think that some of the parabolic gainers within the AI chips scene are getting just a tad ahead of their skis. Whether we’re talking about the semi makers or the semi equipment play, it’s hard to argue against an excessive amount of froth in the sector.
When you consider how many traders have been buying and selling out of a broad basket of semi ETFs, perhaps it’s no mystery that there’s an excess of capital and speculative fever when it comes to the names. And while I do think that the AI trade will do well, the semis are not guaranteed to deliver positive returns for the next year or maybe even the next couple of years.
Huge expectations and volatility in growth and tech
There are explosive expectations that are already priced in. And whenever you’re paying a premium multiple right off the bat, a stock can fall, even if positive results come in. In any case, I wouldn’t want to be a holder of any one of the semi ETFs right here, especially as more investors start thinking about taking some profits right off the table.
Whenever you’re sitting on multi-bagger gains from a parabolic move, taking profits just makes sense. Why not just play with the house’s money if you’re looking to stay aboard while ensuring that the invested principal put in doesn’t get wiped out in a bear-case scenario? Either way, I have no idea what a semi downturn will do to the rest of tech.
Could we have another big market wipeout like last Friday?
Anything is possible. Parabolic movers correcting probably shouldn’t drag everything down, but it certainly can. And that’s a good thing for investors with capital to put to work on the way down. In this piece, we’ll check in on a hot growth stock in tech that actually might be worth pursuing as the sector faces some growing pains.
Alphabet
Enter shares of Alphabet (NASDAQ:GOOG), which, I think, might be one of the better deals in tech. Shares have been hot in the last year, doubling up over the timespan, but have since dipped around 9%. I think this is a correction worth buying, especially given the company’s aggressive AI applications on the horizon. At 27.6 times trailing price-to-earnings (P/E), you’re not paying all too much for AI leadership.
With a strong chip of its own (think the eight-generation TPUs) as well as some of the most sound business plans for cutting-edge tech, I think that if there’s a firm that can unlock the power of AI, it’s Alphabet’s Google. If shares fall further, I’d not hesitate to be a net buyer. It’s an AI powerhouse, and it’s bound to be unfairly dragged down alongside the rest of tech.