On October 10, the Nasdaq Composite Index plummeted 3.6%, painfully reminding us how quickly growth stocks can sell off when market doubts spread. This plunge marked the worst single-day performance since April, directly triggered by the U.S. threat to impose 100% tariffs on Chinese imports, materials widely used in technological devices such as semiconductors and artificial intelligence. For investors in AI growth stocks, this volatility is a severe test. While exploring potential buying opportunities, it is even more crucial to be vigilant and guard against mistakes that could damage your investment portfolio.
A common mistake is over-concentration in a single segment of the AI value chain. For example, an investor might hold stocks in multiple chip design companies like NVIDIA, Broadcom, and Advanced Micro Devices, believing this achieves diversification. However, the problem is that these companies often serve the same downstream clients. Giants like OpenAI might purchase chips from all three companies to build large data centers. If such core clients cut capital expenditures, the performance of these chip companies could be impacted simultaneously. The same situation applies to upstream equipment suppliers. If any of these manufacturers scale back investment, revenue across the entire equipment industry could decline. Even downstream cloud service providers, such as Amazon AWS, Microsoft Azure, and Google Cloud, while benefiting from growing AI expenditures, are also constrained by overall corporate computing demand. Therefore, building a portfolio that covers the entire AI value chain—including chip design, equipment manufacturing, cloud computing applications, etc.—rather than focusing on a specific niche, can effectively help reduce volatility and limit the damage from sector-specific pullbacks.
The robustness of an investment portfolio depends not only on which stocks or ETFs are held but also crucially on the size and allocation of positions. Investors should neither over-diversify to the point where core investments cannot materially impact overall returns, nor over-concentrate so that a sharp decline in a few stocks jeopardizes financial health. For risk-averse investors, strictly limiting the proportion of any single stock in the portfolio is a prudent approach. For those with higher risk tolerance and investment horizons spanning decades, concentrating larger funds in a few well-researched core holdings and continuously injecting new capital might be a viable strategy.
Merely building a diversified portfolio is far from sufficient and may not even be the most critical step. The biggest mistake investors might make in AI investing is “investing in stocks” rather than “investing in companies.” This means they focus excessively on short-term stock price fluctuations and potential speculative gains, while neglecting the company’s core business, competitive advantages, and long-term development prospects. The advice of legendary investor Peter Lynch—”Know what you own, and know why you own it”—remains relevant today. Without firm conviction based on deep understanding, the combined effect of market sentiment and price fluctuations can erode even the most structurally sound portfolio. Investors might hold positions simply because the stock price has risen, but the confidence derived from temporary profits is fragile because it is disconnected from solid investment logic. The best investments are those you dare to allocate a significant portion to and have the confidence to hold even during extreme sell-offs. For example, if someone bought NVIDIA solely chasing quick profits, they might panic and sell when its stock fell over 37% from its April high or dropped more than 55% from its 2022 peak. Conversely, investors who genuinely believe in NVIDIA’s potential spanning decades in the AI data center space would find it much easier to hold their positions steadfastly.
In summary, by diversifying across the value chain, maintaining firm conviction based on in-depth research, and following outstanding companies for the long term, investors can build a robust “investment buffer system” capable of calmly absorbing the shocks from market sell-offs.
