Are you a retiree who owns one or more artificial intelligence (AI) stocks? It wouldn’t be surprising if you are.
They’ve been performing incredibly well for a while now. In fact, they’ve been soaring for the better part of the past three years, shortly after the launch of OpenAI’s ChatGPT set off an AI race that mimics the dot-com boom of the late 1990s. It’s certainly felt like a “can’t-lose” opportunity, so much so that — like then — not participating in the frenzy felt like a mistake regardless of your age.
All good things do eventually come to an end, of course. Even if the wind-down of the AI mania is likely to end differently than others have (with unviable companies gradually bowing out rather than a reset that only leaves survivors standing), it’s still going to take a broad toll on most investors. And that toll could be downright dangerous for retirees who need to protect their nest eggs to ensure they can continue producing adequate income.
This doesn’t necessarily mean all retirees should sell any and all of their AI-related holdings. It simply means you’ll want to rethink each of your current and future holdings with the following advice in mind.
Image source: Getty Images.
1. Weed out your likely losers
First and foremost, yes, there’s a popping of an AI bubble on the horizon if not already underway. So it’s time to get out of any names that are clearly long shots with more potential downside than upside, particularly if they’re unprofitable, or struggling to get and then stay out of the red and into the black.
SentinelOne (S +2.34%) is an example. While the $5 billion AI-powered cybersecurity outfit could conceivably become fiscally viable one day, it’s telling that its losses are still getting bigger rather than smaller as revenue grows. By this point, it should arguably be making bottom-line progress.
It’s not exactly surprising that it’s losing more and more money. The cybersecurity business is a crowded one, with a bunch of bigger players that can afford to develop or acquire whatever tech they need.
Today’s Change
(2.34%) $0.30
Current Price
$13.35
Key Data Points
Market Cap
$4.5B
Day’s Range
$13.22 – $13.74
52wk Range
$12.23 – $21.40
Volume
349
Avg Vol
8.4M
Gross Margin
73.86%
Just be advised that this step is going to take some pretty serious intellectual honesty that many investors haven’t been wanting to apply, hoping that the upside they were seeing was inevitable while ignoring the scope of the risk staring them right in the face.
And for what it’s worth, waiting for a laggard stock to recover so you don’t lock in a loss often ends up being a costlier mistake than just taking your lumps and freeing up some capital for better prospects. You’ll also get some tax benefit from doing so.
2. Recognize the AI movement is evolving, creating new winners
While the first chapter of the AI revolution put the spotlight on companies making the processing hardware that made artificial intelligence possible — Nvidia, mostly, with a strong showing from Broadcom — that stage of the boom has largely run its course. The next chapter of AI’s existence looks like it’s going to reward the companies that make AI solutions cost-effectively available to the world. That’s AI data centers, like those owned and operated by Equinix (EQIX +0.09%) and Digital Realty (DLR +0.98%).
Today’s Change
(0.09%) $0.88
Current Price
$965.41
Key Data Points
Market Cap
$95B
Day’s Range
$964.53 – $977.31
52wk Range
$701.41 – $992.90
Avg Vol
637K
Gross Margin
31.50%
Dividend Yield
1.99%
This shift injects a new business model into the heart of the AI movement too.
While data centers purchase new processors or equipment and then use them for a few years before replacing them, data centers also generate reliable recurring revenue, typically charging their customers a monthly fee for ongoing cloud-based access to these platforms. Technology stocks aren’t particularly well known for this, but it makes the names that are critical to the artificial intelligence business perfectly suited to support strong, reliable dividend payments that could certainly provide growth-like net returns. For perspective, Equinix’s quarterly per-share dividend payment has grown by nearly 80% over the course just the past five years.
It’s not just data center names that are solid opportunities at this time. Even if the industry’s once-hottest hardware names like Nvidia or AI software powerhouse Palantir Technologies are unable to maintain their previous growth rates, data centers still need increasingly scarce cost-effective electricity.
This puts on-site power solutions providers like Bloom Energy (BE +2.84%) into the conversation. Bloom not only makes and markets solid oxide fuel cells (SOFC) that can generate this necessary electricity, but can often do so at a lower cost than plugging into the nation’s electricity grid. That’s why (as Bloom highlighted in a recently published look at this aspect of the business) “hyperscalers and colocation providers expect that roughly one-third of data centers in 2030 will use 100% onsite power, a 22% increase from the previous report six months ago.”
Today’s Change
(2.84%) $4.14
Current Price
$150.02
Key Data Points
Market Cap
$42B
Day’s Range
$145.40 – $153.62
52wk Range
$15.15 – $180.90
Volume
2.1K
Avg Vol
11M
Gross Margin
30.89%
3. Learn which parts of the business work, and which don’t
Last but not least, retirees with positions in artificial intelligence stocks right now should begin making a transition plan away from the popular picks they likely own to off-the-radar AI names that are already positioned for future success. This advice may feel like a repeat of the first two tips, and in some ways it is.
But it’s also a brand-new premise that will require you to sharpen your understanding of how AI’s different facets work, and which of these facets are working and which ones aren’t. For example, while so-called general generative AI can do some seemingly amazing things, much of it doesn’t have a great deal of sustainably practical value to profitably monetize, at least not yet. Agentic AI though — artificial intelligence-powered chatbots purpose-built for a specific organization or function — are cost-effective and well-received. They’re a promising business.
This bodes well for a name like relatively unknown Nice (NICE 0.51%). It’s an agentic AI platform specialist, reporting top-line growth of 8% for all of last year, but 13% revenue growth for its cloud arm largely thanks to growing interest in its autonomous customer service agent capabilities. The consistently profitable company is looking for comparable growth this year, plugging into an industry that Roots Analysis expects to grow at an average annual pace of nearly 35% through 2035.
Today’s Change
(-0.51%) $-0.56
Current Price
$109.42
Key Data Points
Market Cap
$6.6B
Day’s Range
$107.42 – $111.15
52wk Range
$94.65 – $180.61
Avg Vol
835K
Gross Margin
66.41%
These obviously aren’t the only branches of the AI business, none of which you’re required to become an outright expert in. You will want to become well-versed enough in all of them, however, to make an intelligent and complete long-term watchlist of names to consider buying. And simultaneously make an exit plan for the AI stocks you currently own that you know you’ll be wanting to shed sooner or later.
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