The next big thing in AI will be utility: the strategist

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AI trading continues to thrive as big tech companies continue to defy expectations and show there is room for further growth. These AI investments are not only driving up market indices along with hardware demand, but also increasing the need for energy to power the next generation of technology.

Kevin Mahn, CIO at Hennion & Walsh, joins Market Domination to share his insights on the artificial intelligence theme, why there's still room for it to grow, and whether investors should start considering Utilities (XLU) as the next long-term AI investment.

“Nobody has paid this much attention to public utilities for the better part of the last three years,” he said. [interest] Rates have gone up. Guess what happens when rates go down? Suddenly, utilities that pay 4.5%, 5% look very attractive again. And this is another way to play the AI ​​game. Remember, the data centers that run the massive algorithms of AI depend on utilities to provide the power solutions they need.”

He continued on that line of thinking, saying: “So I think there's another good way to play in an area of ​​the market that still trades at attractive valuations, pays strong dividends, can weather an economic slowdown, and perhaps offers more upside potential than we've seen in the tech sector thus far.”

For more expert insights and the latest market trends, click here to watch this entire episode of Market Domination.

This post Nicholas Jacobino

Video Transcript



With us now is Kevin Maher, Chief Investment Officer at Hennion & Walsh.

Nice to meet you, Kevin.

So let's start there. Kevin, as you've heard, we're trying to do this stock rotation together.

A lot of people are talking about this, but we're waiting to see if the big technology companies that we're seeing here today come in.

But listen, the interest rate sensitive sectors, the Kevin small caps, are bidding in cash.

You might think that a move is a one-day affair, but it's a much bigger deal than that.

It's much larger.

It will stick.


I think we may have started to see outflows from the large tech stocks today, and those outflows will be driven by interest rate cuts as well as earnings growth outside of the big seven tech stocks.

To put it in perspective, recall that 83% of the S&P 5 100's earnings growth over the past 12 months was driven by seven incredible technology stocks.

We also see that the market rose 15% through the first two quarters of the year.

Remove magazine 7.

Now it's up just 4%.

While this is an average year for the market, it's certainly not as good as a 15% increase.

Hence, the market is expecting earnings growth from the other 493 stocks this quarter.

And the good news is that the facts show that.

It's 4.

We expect second-quarter profit growth to reach around 8.8%.

If true, this would mark the company's highest quarterly year-over-year revenue growth since the first quarter of 2022.

Ironic, I couldn't help but think so.

You know, if interest rates had fallen two years ago and yields had fallen, tech stocks would have risen, right?

In other words, a big change has occurred.

It's ironic that technology is now a refuge, but with interest rates starting to fall, it makes you question it.

If the Fed starts cutting interest rates, will those companies benefit too?

Will you continue to look at rotating it or will you just buy it?

An anything-goes market?

Well, the tech industry is far from dead.

In fact, I believe the growth opportunities associated with the AI ​​ecosystem will continue for years to come.

But what areas of the market haven't really participated in this upswing that began early last year?

What about sectors like industry, aerospace and defense, consumer staples, healthcare, and even utilities?

For the better part of the last three years, no one paid much attention to their utility bills as rates increased.

Imagine what would happen if interest rates fell.

Suddenly, utilities paying 4.5 percent look very attractive again.

This is also another way to play AI games.

Remember, these data centers that run AI’s massive algorithms depend on utility companies to provide the necessary power solutions.

So I think there are other good ways to invest in areas of the market that are still trading, offer strong dividends at attractive valuations, can weather an economic slowdown, and offer more upside potential than we've seen in the technology sector so far.

That doesn't mean you should sell all your tech stocks, but maybe try redeploying some of your games to other parts of the world.


So utility is interesting, Kevin, because we have strategists, come on.

And they like utility because they feel there's a little bit of both offense and defense in that area.

You heard Julie and I talk about lowercase capital letters, that's interesting.

In other words, tech stocks are falling sharply, but small caps are attracting buying.

Are you telling your customers?


Want to use lowercase here?

You want to stay there.

And now we have a lot of clients.

Who would have seen last year's mark rise by more than 15% through the first two quarters of this year?

The mark rose by more than 26%.

And were they really parking?

In the short run, C, DS and Treasury will earn 55.25 percent.

It's relatively risk-free.

A smart way to play.

But what about this?

Add these two together.

You missed out on a pretty big rally that took place in the stock market.

Josh, my fear right now is that investors will come off the sidelines.

They are looking to enter market sectors like the big tech companies.

They are going to enter at a higher price and should consider diversifying more.

Look at small cap stocks.

Look internationally.

Look at the other sectors I mentioned, include Mac 7 in your allocation to large tech, but consider an equal allocation rather than waiting for market cap.

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