With valuations so high in artificial intelligence stocks, investors may want to start thinking about backup plans, said Adam Parker, founder of Trivariate Research. The plan includes creating a diverse list of non-AI stock ideas, especially since the S&P 500 is heavily weighted with tech and AI stocks. “Our quality-adjusted AI index has the highest correlation ever with the S&P 500,” Parker wrote in a note Sunday. “It is no exaggeration to say that the S&P 500 is a bet on the AI factor.” Stocks remain near all-time highs thanks in large part to the excitement around artificial intelligence. On Monday, the S&P 500 index rose 1.2% in intraday trading, after an eventful week that ended with the index remaining in the green. Recent rallies have some wondering whether the AI boom could turn into a bubble. Allianz chief economic adviser Mohamed El-Erian on Monday called it a “rational bubble.” He said that while AI is good for increasing productivity, a lot of money is currently being invested in different companies. “At the end of the day, there are only a few winners, a handful. So some of the investment is going to be wasted,” El-Erian said in an interview with CNBC’s “Squawk Box.” Parker still believes the outlook is positive for the next three to six months, thanks to AI productivity and a dovish Federal Reserve. When it comes to comparisons to the 1999-2000 dot-com bubble, he said there are relevant and unrelated contrasts to the current situation. For example, he noted that valuations for megacap and large-cap stocks are not as extreme today as they were then. Additionally, capital expenditures are being funded by strong cash flow rather than debt, he said. “But the market is always building expectations for pattern recognition, and I don’t think we’ll see another six months of speculation like we’ve seen recently,” said Parker, former chief U.S. equity strategist at Morgan Stanley. “It seems increasingly prudent to hedge your portfolio with uncorrelated longs, diversified longs, and avoid the most speculative securities.” To find stocks to diversify, Parker looked for stocks with low correlations to his AI semiconductor basket. It was also up at least 10% in the past six months, with top half quality and a beta of less than 1. This means it is less volatile than the market. These names have market capitalizations of over $50 billion. Here are some stocks that have risen in value. Although the correlation between Walmart and Trivariant Research’s AI semiconductor basket is low, they are certainly leveraging AI within their own businesses. The leading retailer is turning to AI to optimize its shopping experience. The company’s latest move came last week when it announced that shoppers can now make purchases directly through OpenAI’s ChatGPT. In August, the company reported mixed financial results, with revenue coming in below expectations but sales beating consensus estimates. But Walmart raised its full-year earnings and sales outlook despite its battle with tariffs. The company is scheduled to announce its third quarter results next month. The stock price has increased about 18% since the beginning of the year. Meanwhile, Netflix is scheduled to release its latest quarterly results on Tuesday. Bernstein analyst Laurent Yun said in a note last week that the popular “K-pop Demon Hunters” will be key to Netflix’s performance. In early October, Tesla’s stock price tumbled after CEO Elon Musk urged his social media followers to cancel their Netflix subscriptions over a show Musk claimed carried a “transgender awakening agenda.” Analysts were not concerned about the impact on stock prices, which have since recovered. Netflix is up nearly 40% so far this year Finally, Welltower is up over 40% since the beginning of the year. The real estate investment trust owns and develops senior housing, skilled nursing/post-acute care facilities, and medical office buildings. The aging population and lack of supply are expected to be a boon for the senior housing industry. For example, Bank of America predicts that returns for its five senior housing REITs – Welltower, Ventas, Sabra, American Healthcare REIT, and National Health Investors – will expand faster than Wall Street expected in 2026 and reach a record 39% by 2028, compared to Wall Street’s high of 36%. — CNBC’s Fred Imbert contributed reporting. (Learn the best strategies for 2026 from inside the New York Stock Exchange with Josh Brown and more on CNBC PRO Live. Tickets and information here.)
