As concerns about the U.S. tech bubble linger, investment strategists on both sides of the Atlantic are planning a variety of diversification strategies to shore up their portfolios against sharp market corrections. Market experts told CNBC that European stocks, government bonds and value stocks are all well-positioned amid valuation concerns in the artificial intelligence space. Arnaud Giraud, head of economics and cross-asset strategy at Kepler Cheuvreu, said on Monday that recent pressure on some AI-related U.S. tech stocks is likely to continue, noting that the economic downturn will hit semiconductors particularly. Girod acknowledged on CNBC’s “Early Edition of Europe” that projections for next year’s data center capital spending, the centerpiece of the AI boom, are higher than forecasts at the beginning of the year. But he also warned of problems with physical limitations – factors such as power availability, grid connectivity and overheating – that suggest “this boom is also leading to higher inflation.” This increases the risk of project delays within the data center space. “This is the risk now: the boom is so big that it could delay the development of data centers,” Girod said. Relative Advantage US markets were volatile last week as tech companies grappled with valuation concerns and market rotation, putting pressure on the AI narrative. Against this backdrop, European stocks offer portfolio diversification opportunities for global investors, Girod said. “The relative advantage of European stocks at the moment is that the exposure to AI in the stock market is much more limited to industrial sectors than in Japan or South Korea,” Girod said. Utilities have benefited recently from speculation about increased power demand, he added, but it’s still “very small.” Separately, Girod cited bonds as an increasingly attractive trade compared to stocks. “If you want to be invested in stocks, you’re going to be invested in AI,” Girod said, noting that MSCI’s top 10 constituents are now U.S. tech companies. “We’re just a few percentage points away from peak dotcom multiple. To be honest, we never thought we’d see this again, but here we are.” By contrast, fixed income competitiveness is on the rise again, with Treasury market yields now at 4%. “In relative terms, this is not that bad,” Girod said. He acknowledged that the downward trajectory of inflation could still be hampered by tariffs and that “big question marks” still remain. But he said that with President Donald Trump’s recognition of the negative impact tariffs would have on consumers, “we are at a tariff watershed.” The Next Big Game Meanwhile, John Blank, chief equity strategist at Zacks Investment Research, thinks value stocks will be the “big game” next year. “It’s going to be a value stock with a growth component,” Blank said Monday on CNBC’s “Squawk Box Europe.” Biotech names, which Blank says have been “pretty badly beaten,” continue to grow while still providing value, and industries and banks appear poised for rotation. “There are a lot of areas like that,” Blank said. Blank says NVDA 1M Mountain Nvidia investors are also starting to move away from lumping together ‘Magnificent Seven’ stocks and are instead looking at each company individually. He suggested this change is reflected in recent quarterly Securities and Exchange Commission 13-F filings from hedge funds and other major investors. Here, Warren Buffett’s Berkshire Hathaway entered the equation by acquiring another $4.3 billion in Alphabet stock, but cut its position in Apple by 15%. David Tepper’s Appaloosa Management cut its bets on Alphabet, Meta and Amazon, but increased its bet on Nvidia by 85%. Dan Loeb’s Third Point increased its positions in Nvidia and Amazon, and more than doubled its stake in Microsoft. “We got a little too carried away with lumping together the seven biggest stocks,” Blank said. “The seven big hyperscalar stocks go from Tesla’s P/E of 200 to a meta P/E of 20. In the middle you have Microsoft and Alphabet at No. 30 and Nvidia at No. 40. People are going to start unpacking those seven stocks and start thinking about them in the context of specific situations. I think you saw that in the 13-F filing.”
