Financial Expert Advises Pumping the Brakes on Big Tech Stocks — 3 Reasons Why

According to recent research from the Pew Research Center, roughly half of American adults reported using artificial intelligence (AI) chatbots, up from 33% in 2024. However, 40% believe AI will have a negative impact on society over the next two decades. With 63% of Americans believing that AI is advancing too quickly, there are also concerns in the investing space over the moves of major tech companies.

We spoke with a financial advisor who consults with clients on big tech stocks and what they need to know before investing, especially in the current economic landscape. Below, he discussed the main points you have to consider.

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Big Tech Companies Are Investing Heavily in AI

Nate Willardson, a CFP and managing partner at Currents Wealth Strategies, believes big tech companies have strong earnings to justify their current prices, but would keep an eye on how they spend on AI. He emphasized that many tech companies are borrowing to fund AI investments, which concerns him because borrowed growth carries greater risk than self-funded growth, especially amid current global conflicts.

Recent events in the stock market indicate investors are also not fully on board with AI investments. Global markets saw significant drops amid concerns over sky-high valuations and expensive borrowing costs for worldwide AI infrastructure investments. NBC News noted the S&P 500 closed lower by 1.4% and the Dow dropped 46 points due to the tech stock selloff.

Another report from NPR questioned whether AI is one big bubble, raising doubts about whether the trillion dollars spent on the technology will yield returns. With popular AI-based tech stocks like Nvidia and Google-parent Alphabet dropping multiple days in a row, it raised the concern of whether investing in big tech stocks is the best move right now.

Furthermore, a report released by the Bank of America Institute earlier this year found only about 3% of its customers were paying for AI services, with a median monthly spend of $20.

You Can Just Invest in Index Funds With Less Risk

Willardson pointed out another risk is hidden concentration. He warned, “If you invest in the S&P 500 today, you’re already making a bet on the top seven names that make up one-third of the index.”

By investing in index funds, you can diversify your funds, and you don’t have to worry about issues with one industry. While tech stocks have had a great run, you can’t guarantee that it will last forever. As you get closer to retirement, you want to spread your risks and diversify your portfolio to help ensure a consistent income in your golden years.

There Are Better Investments Around

“Before adding more to the big tech names, I would look at the whole picture,” Willardson said. “Quieter corners of the market, profitable and reasonably priced companies have rewarded patient investors for decades.”

He advises his clients to seek out other investments since there’s such a concentrated focus on tech stocks right now.

Warren Buffett is known for suggesting that you invest in what you know and sectors that you understand. While it can be exciting to jump on the trend with investing in big tech stocks, you may not be able to handle the volatility involved and could be better off investing in safer sectors that you understand. As you get closer to retirement, you may also want to seek out safer options so market swings don’t affect you as much.

This article was provided by MoneyLion.com for informational purposes only and should not be construed as financial, legal or tax advice.

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