AI continues to lead in 2025. Today we look at a few options that are actionable around current levels.
Whether your clients love it, hate it, or don’t know how to feel about it, AI is certainly a major point of emphasis across major domestic equities. While Dorsey Wright doesn’t currently have an “AI Screen” available, that certainly doesn’t mean that there aren’t ways to source related ideas to include in a client’s portfolio. Today’s feature will talk through a top-down approach to gauge the health of the artificial intelligence group and best practices for relevant idea generation as we open up September.
Before picking stocks, a best course of action is to typically gauge the health of the sector first. After all, if a sector is strong, we may be able to deploy a more “throw a dart” strategy, instead of having to be more focused in our exposure. It may come as no surprise that technology ranks well- sitting in third of our DALI rankings at the time of this writing…. But not all subsectors of technology are created equal. The four subsectors of technology have vastly different participation readings, signaling an imbalance in what kind of stocks are actually contributing to technology’s leadership. While you can make an educated argument that any of the four tech focused subsectors (Hardware, Semiconductors, Software or Tech. Services) are AI adjacent, semiconductors probably fits the bill as the most “AI-Like” subsector. Roughly 2/3rd’s of semiconductor stocks maintain a PnF buy signal at the time of this writing, overshadowing the other subsectors quite handedly. Translating all this into plain English: Artificial intelligence related sectors look to be the main driver behind technology’s leadership, particularly over the last few months.
Now that we understand the health of the sector is sound, we can start to look underneath the hood to generate actionable ideas. As we mentioned before, a stronger relative strength sector backdrop allows us to consider a wider array of investments, including ETFs which dip their toes across many different holdings. Take for example the Global X Funds Artificial Intelligence & Technology ETF AIQ, which invests in 90 different AI focused names. AIQ currently holds a strong 5.62 fund score, breaking to new all-time highs to close August. It has support offered just below the middle of its respective trading band at $43.50, currently offering an attractive entry point for long exposure. Using NDW’s fund compare tool, we can identify roughly 90% of total AIQ allocation comes from the Technology and Consumer Cyclical sectors, just shy of double that of S&P 500 proxy SPY.
By now, everyone is familiar with the big AI players. Your clients’ portfolios are already chalk full of the NVDA & PLTR’s of the world… so going and suggesting to simply add more to those positions isn’t the biggest value add during an upcoming client meeting. Instead, we can look at other technically actionable AI adjacent stocks that might play as more of a satellite position. To do so, we can send the holdings of AIQ into a watchlist, sort them by their TA score, and use the thumbnails function to quickly scan across charts. While by the book you can make an argument for any stock with a TA score >=3, there are a few standouts that look quite attractive around current levels. While it isn’t a 5/5’er like some of the other names underneath the hood of AIQ, CSCO looks quite strong around current levels having established some support just below current levels. It trades just below its 50-day and the technical setup here is quite strong for those looking for a name gearing up to take on 2025 highs in the low $70’s.
