Top ETFs for Diversifying Away from AI Bubble Risks Flagged by Goldman Sachs

Investing heavily in the technology sector to capture AI’s growth potential carries notable concentration risks. If the AI-driven stock market bubble bursts, portfolios focused on tech stocks could face sharp losses. Diversifying beyond tech funds and companies is a prudent strategy to reduce exposure to this risk.

Concerns about an AI bubble gained traction after OpenAI CEO Sam Altman acknowledged the possibility in an interview with The Verge. This highlights the sector’s vulnerability and the potential for systemic shocks. Goldman Sachs has recently echoed these worries, signaling caution for investors.

Goldman Sachs Flags AI Risks

Goldman Sachs has issued an early warning about the short-term outlook for AI-focused stocks. Ryan Hammond, US equity strategist at Goldman Sachs, notes cautious investor sentiment around companies tied to AI-driven revenues. Investors are debating whether AI represents a risk or an opportunity and are waiting for clear signs of near-term earnings growth.

Hammond also mentioned that investment in AI as a share of capital expenditure may be peaking, which raises the possibility that optimistic investors could be disappointed if earnings don’t meet elevated expectations.

ETFs to Consider Amid AI Uncertainty

With weaker-than-expected labor data in August—only 22,000 jobs added in the U.S.—an interest rate cut from the Federal Reserve appears likely. This could benefit tech stocks and the broader market. Still, protecting capital and managing volatility are essential for investors facing a potentially turbulent period for AI-related stocks.

Expanding exposure beyond pure tech can help balance risk and support more stable returns. Here are some ETF categories worth considering.

Equal-Weighted ETFs

Equal-weighted ETFs allocate the same weight to each stock regardless of its market cap, reducing concentration in mega-cap tech names. This structure helps diversify risk across sectors.

The S&P 500 Equal Weight Index delivered an 8.46% gain over the past year and 3.20% quarter to date. Funds like Invesco S&P 500 Equal Weight ETF (RSP), ALPS Equal Sector Weight ETF (EQL), and Invesco S&P 100 Equal Weight ETF (EQWL) offer broad market exposure with a more balanced risk profile.

Value ETFs

Value ETFs focus on stocks trading below their intrinsic value, supported by strong fundamentals such as earnings, dividends, book value, and cash flow. This approach appeals to investors seeking undervalued opportunities.

Options with strong ratings include Vanguard Value ETF (VTV), iShares Russell 1000 Value ETF (IWD), and iShares S&P 500 Value ETF (IVE). These funds provide exposure to companies that may offer more resilience if the tech sector stumbles.

Quality ETFs

Quality ETFs invest in companies with solid balance sheets, stable earnings, and efficient operations. They can serve as a defensive option during uncertain market conditions.

Consider funds like iShares MSCI USA Quality Factor ETF (QUAL), Invesco S&P 500 Quality ETF (SPHQ), and JPMorgan U.S. Quality Factor ETF (JQUA) to add stability to your portfolio.

For those interested in learning more about AI and its market implications, resources like Complete AI Training provide a range of courses and insights that can deepen your understanding of AI trends affecting investments.