How to Keep Profiting From AI While Guarding Against a Slowdown
TREE NEWS reports: Two portfolio managers at Fort Washington Investment Advisors, Jamie Wilhelm and Sunit Gogia, say the artificial-intelligence investment wave still has legs — but they are also watching a set of leading indicators that have historically preceded an economic downturn. Their message to investors: stay exposed to the AI theme, but build in protection now, before the cycle turns.
What Happened
Wilhelm and Gogia laid out a framework that treats AI as a structural, multiyear capital-spending cycle rather than a short-lived fad. Demand for compute, data-center capacity, power, and advanced chips continues to outstrip supply, and the managers expect that to support earnings for the companies at the center of the buildout. At the same time, they flagged a list of forward-looking signals — softening in credit conditions, weakening manufacturing and hiring data, and deteriorating breadth across equity markets — that tend to appear before a broader slowdown.
The practical takeaway is a barbell approach: keep meaningful exposure to the secular AI winners, but pair it with defensive and lower-volatility holdings that can cushion a drawdown if growth cools.
Market Implications
Stocks. The AI complex — chipmakers, hyperscalers, and the power and infrastructure names feeding data centers — remains the market’s earnings engine. If the cycle stays intact, leadership likely persists. But narrow leadership is itself a warning sign: when gains are concentrated in a handful of mega-caps, the index is more fragile if sentiment shifts. Investors should watch market breadth, not just headline index levels.
Bonds. If leading indicators roll over, expect a flight to quality. Treasuries and high-grade credit typically rally as growth expectations fall and rate-cut hopes rise. That makes duration a useful hedge against an equity pullback. Conversely, if the economy stays hot and inflation proves sticky, yields could rise and pressure long-duration bond prices.
Crypto. Digital assets have traded increasingly as a high-beta proxy for risk appetite and liquidity. A genuine slowdown would likely hit crypto harder than large-cap equities, since it lacks earnings and cash-flow support. Any easing in monetary conditions, however, could quickly revive speculative demand. Expect crypto to amplify whatever direction macro takes.
Commodities. The AI buildout is power-hungry, which underpins demand for electricity, natural gas, copper, and uranium. Those structural needs can persist even as the broader economy slows — a rare pocket of resilience. Industrial metals tied to general construction, by contrast, are more exposed to a downturn.
Currencies. A US slowdown paired with expectations of Fed easing tends to weaken the dollar, which would be a tailwind for emerging-market assets and dollar-priced commodities. A resilient US economy, by contrast, keeps the greenback supported.
Why This Matters for Investors
The central tension is timing. The AI theme is real, but no trend runs in a straight line forever. The managers’ point is not to abandon AI — it is to stop treating it as a one-way bet. Investors who only own the momentum leaders leave themselves fully exposed if the leading indicators they are watching actually confirm a slowdown.
A more durable approach blends conviction with caution: hold the structural winners, diversify across sectors and asset classes, and keep some dry powder. That way, a pullback becomes an opportunity to add to positions rather than a reason to panic.
Key Takeaways
- The AI capital-spending cycle is expected to continue, but leading economic indicators are flashing early caution.
- Narrow market leadership is a fragility signal — watch breadth, not just index highs.
- Bonds and duration can act as a hedge if growth cools and rate-cut expectations build.
- Crypto is likely to amplify risk-on and risk-off moves, in both directions.
- Power, gas, copper, and uranium demand is tied to AI infrastructure and may prove more resilient than the broad economy.
- Position for both outcomes: stay invested in AI, but add defensive ballast and keep cash ready.
