A 75-year-old retiree who held 40% of his portfolio in Nvidia is steadily selling his shares. 'The last thing I want to have happen is the bottom fall out,' said Tim Wiklund of Tucson, Arizona. He's not alone in his anxiety.
Retail investors who profited from the artificial intelligence rally are now pulling back, fearing a bubble, according to the Wall Street Journal. Michael Burry, famous for predicting the 2008 housing crash, recently disclosed significant short positions in Nvidia and Palantir Technologies. Meanwhile, individual investors are exiting tech stocks in near-record numbers, shifting their capital into gold and bonds. This defensive rotation raises a pressing question: should others follow suit?
Why Passive Investors Can't Escape Tech
The average investor with a retirement account is likely exposed to AI stocks, said Steve Sosnick, chief strategist at Interactive Brokers. The so-called Magnificent Seven tech giants now account for over 33% of the S&P 500's total value. Most tracker funds cannot avoid them.
Trading activity has surged this year. According to JPMorgan analysts, retail investors are set to break records last seen during the 2021 meme-stock frenzy. Small investors have piled into AI stocks while trimming other holdings.
However, cracks are beginning to show. The Nasdaq experienced its steepest weekly decline since April's tariff shock in early November. Fears are mounting that AI-related spending has gone too far.
This turmoil has attracted the attention of one of the most renowned investors of recent times.
The Warning From 2008's Prophet
Michael Burry made his name shorting subprime mortgages ahead of the 2008 financial crisis. In early November, he took similar positions against Palantir and Nvidia. If these stocks drop, he stands to profit.
His timing reflects a broader market shift. Investors are questioning whether AI companies are overspending. Oracle, which has borrowed billions to expand its data centres, has seen its shares fall 7.4% over the past month. CoreWeave, an AI cloud provider, has declined by 13%.
'It isn't difficult to create a scenario where the positive-feedback loop that we've seen from AI investing can turn into a negative-feedback loop,' Sosnick said.
This shift is already evident in investor behaviour.
From Tech Bulls to Gold Buyers
Interviews with US investors, reported by the Wall Street Journal, reveal a clear pattern of retreat.
Brian Hahn, a maths teacher from Tennessee, is a typical example. For 10 years, he kept four-fifths of his savings in technology stocks. Last October, at the age of 51, he liquidated all his holdings and switched to gold. 'It was too much risk for me to assume that this was going to keep moving higher,' he explained.
Wiklund, the Arizona retiree, still holds a small Nvidia position but has been steadily trimming. 'If I've got too much going on in any one stock, I kind of get an uneasy feeling about it,' he said.
Daniel Jarratt, a 31-year-old, represents a younger demographic. He began buying Nvidia shares in 2022. Today, around two-thirds of his wealth is invested in AI-focused technology firms. While he has kept his holdings, he has stopped making new purchases. 'The boom has kind of come and gone,' he said.
The Risk of Waiting versus the Risk of Missing Out
Despite the recent sell-off, stock indices have rebounded to record levels, even as concerns about a downturn persist. Investors who sell now risk missing out on potential gains.
Age plays a significant role in this decision. Younger investors can afford to ride out volatility, while those nearing retirement have less room for error and are increasingly adopting defensive strategies.
Nevertheless, some remain bullish. Tamar June, a Nevada-based software executive who has owned Nvidia for years, sees no bubble. 'I don't think it's reached the top of the bell curve by any means,' she said.
For retirees like Wiklund, the stakes are different. With less time to recover from potential losses, staying fully exposed to AI stocks may be the greater gamble.
As the market continues to evolve, the question remains: is your nest egg truly safe in this shifting landscape?
Disclaimer: Our digital media content is for informational purposes only and does not constitute investment advice. Please conduct your own analysis or seek professional advice before investing. Remember, investments are subject to market risks, and past performance does not guarantee future returns.
