Key insights
- Evercore ISI suggests that investors heavily concentrated in AI stocks consider diversifying into "negative beta" stocks within the S&P 500. These stocks, which tend to move inversely to the broader index, offer equity upside while hedging against near-term volatility, especially given the diminished effectiveness of traditional hedges and the concentration of AI gains in a few large-cap stocks. The firm maintains a bullish S&P 500 target, citing AI-driven sectors, but recommends specific negative beta names
Investing.com -- Investors overexposed to artificial intelligence stocks have a better diversification option hiding inside the S&P 500 itself, according to Evercore ISI, which identified stocks trading inversely to the broader index.
Analyst Julian Emanuel said single-stock volatility is elevated, implied correlations between stocks are low, and "a surging number of stocks now trade inversely with the S&P 500".
These so-called negative beta stocks are said to offer diversification potential without abandoning equity exposure entirely.
The strategy is timely, Emanuel argued, because traditional hedges have lost their effectiveness.
Emerging markets are now more technology-heavy than the S&P 500, inflation has flipped the stock-bond correlation, and gold has recently failed to hedge geopolitical risk-off moves.
Meanwhile, index investing has become increasingly synonymous with AI investing, with the top ten S&P 500 stocks accounting for 40% of index weight and a majority of earnings-per-share upgrades.
Evercore ISI maintained its year-end S&P 500 target of 7,750, with a bull case of 9,000, led by AI-heavy information technology, communication services and consumer discretionary sectors.
For investors already fully exposed to that trade, the firm recommended negative beta stocks with upward earnings revisions as "an attractive strategy to retain long exposure to equity upside and navigate near-term volatility from new Warsh Fed."
The four Overweight-rated negative beta names Evercore ISI highlighted are Coca-Cola, Costco, T-Mobile and Mondelez International.